I  Jt  \  i\  i 


"As  in  1858  Abraham  Lincoln  foresaw  that  this  Government  could  not  endure  half  slave  and  half 
free,  so  noiv  it  is  clear  that  the  domestic  prosperity  and  commercial  supremacy  of  this  country 
among'  all  the  nations  of  the  earth  ivait  alone  upon  our  unequivocal  declaration  and  irrevocable 
decision  as  to  our  monetary  standard." 


OUR 

FINANCIAL  DIFFICULTY 

AND  THE 


REMEDY. 


ADDEBSS 


BY 


HON.  CHARLES  N.  FOWLER, 

OF   NEW  JERSEY, 


BEFORE  THE 


COMMITTEE  ON  BANKING  AND  CURRENCY, 


ON 


H.  R.  BILL  6442. 

Your  opinion  of  this  Bill 
at  an  early  date 
is  earnestly  solicited 

WASHINGTON: 

GOVERNMENT  PRINTING-  OFFICE. 
189C. 


Avery  Architectural  and  Fine  Arts  Library 
Gift  of  Seymour  B.  Durst  Old  York  Library 


ADDRESS  OF  HON.  CHARLES  N.  FOWLER. 


It  will  be  comparatively  useless  to  attempt  to  deal  with  the  finan- 
cial question  unless  the  evils  from  which  we  are  suffering  are  clearly 
understood. 

As  well  might  the  physician  attempt  to  treat  a  patient  without  diag- 
nosing his  case.  It  is  generally  admitted  now,  I  think,  that  treatment  is 
comparatively  easy  if  you  have  discovered  the  cause  and  thoroughly 
understand  the  disease. 

As  the  treatment  of  any  case  depends  upon  the  diagnosis,  and  as 
treatment  must  diverge  as  opinion  with  regard  to  the  difficulty  diverges, 
our  first  effort  should  be  to  find  as  many  causes  of  our  trouble  as  pos- 
sible upon  which  we  can  all  agree,  so  that  ^ve  can  pnoceed  along  well- 
established  and  well-recognized  lines  of  treatment. 

In  the  first  place,  I  think  all  agree  that  our  deplorable  condition  is 
due  to  an  organic  weakness  and  a  functional  malady  often  reaching  an 
acute  form,  and  that  during  the  past  three  years  our  condition  has  been 
chronically  acute.  Our  trouble  involves  both  our  national  finances  and 
the  currency  system  of  our  banking  institutions.  We  may  administer 
a  few  sugar-coated  flour  or  dough  x>ills?  like  increasing  the  circulation 
to  par  of  the  bonds,  and  allowing  banks  to  organize  with  smaller  capital 
in  out-of-the-way  places,  and  thereby  allay  the  apprehensions  for  the 
atternoon;  but  unless  we  actually  remove  the  organic  difficulty  on  the 
one  hand  with  an  unequivocal  measure  of  value,  and  reenforce  the  blood 
by  infusing  into  the  currency  arteries  the  buoyancy  and  elasticity  of 
our  vast  but  rapidly  exchanging  wealth,  this  old  malady  will  ever 
return  in  more  and  more  malignant  form,  prey  upon  an  ever  weakening 
constitution,  produce  greater  and  greater  anarinia,  and  end  in  disorder 
and  ruin. 

Let  us  inquire  first,  then,  what  the  organic  or  constitutional  weakness 
is.  It  began  by  the  Government  issuing  its  first  paper  money,  possi- 
bly of  necessity,  but  foolishly  kept  in  circulation  long  after  the  necessity, 
if  any  ever  existed,  had  disappeared;  and  it  is  no  guaranty  of  wisdom 
simply  because  the  Supreme  Court  has  decided  that  Congress  could  make 
nothing  but  a  piece  of  paper,  that  was  always  being  redeemed  and  yet 
is  never  retired,  a  legal  tender.  There  are  a  great  many  things  that 
Congress  can  do  and  does  do  that  are  supremely  and  superbly  foolish, 
and  conspicuous  among  its  acts  of  this  character  was  the  act  perpetu- 
ating the  existence  of  the  greenback  long  after  its  purposes,  if  born  of 
necessity,  had  been  served.  If  a  small  portion  of  the  money  that  was 
used  in  paying  off  the  Government  bonds  which  could  not  annoy  us 
had  been  applied  in  liquidating  our  demand  obligations,  we  would  have 
been  saved  an  immense  amount  of  financial  trouble  and  a  vast  amount 
of  interest,  too,  before  we  have  finished  the  greenback  chapter.  But  we 
were  not  satisfied  even  with  getting  8340,000,000  for  nothing  through- 
out eternity,  so  we  started  out  upon  the  silver  scent;  and  while  we  were 

3 


c-Mj*/  c; 

4  OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 

cunning  enough  in  the  act  of  1878  to  hide  behind  the  coined  dollar 
deposited,  we  had  the  hardihood  in  1890  of  increasing  our  demand  obli-  « 
gations  at  the  astounding  rate  of  $50,000,000  a  year,  with  no  way  of 
meeting  them  except  the  taxing  power  of  the  Government.  We  did 
not  even  assure  the  people  and  the  world  of  our  good  faith  by  putting 
up  a  redemption  fund  corresponding  with  that  lodged  against  the  green- 
backs. 

What  happened?  We  soon  found  that  technically  we  had,  including 
the  national-bank  notes,  about  $1,000,000,000  of  demand  obligations 
out,  and  only  the  same  $100,000,000  we  thought  necessary  to  protect 
the  $316,000,000  greenbacks,  when,  in  fact,  we  ought  to  have  had  at 
least  $300,000,000  of  gold  under  the  circumstances. 

All  classes  of  our  people,  to  say  nothing  of  the  business  men,  and 
particularly  the  bankers,  were  looking  each  other  mysteriously  in  the 
face  and  inquiring  whether  it  might  not  be  well  to  hide  away  some 
gold.  The  foreign  broker,  wanting  to  appear  conservative  and  protect 
his  client,  and  of  course  get  another  commission  on  an  exchange  of 
securities,  advised  extreme  caution,  pointing  out  that  it  would  be  impos- 
sible for  the  United  States  to  maintain  the  gold  standard,  and  that  it 
was  in  a  position,  in  fact,  to  slide  from  under  when  the  crash  came. 

What  has  been  the  result?  The  American  people  of  every  class 
have  been  hoarding  gold,  while  the  foreigners  have  been  withdrawing 
their  investments,  and,  what  is  quite  as  bad  for  an  undeveloped  coun- 
try, withholding  their  money  from  us. 

The  large  outstanding  demand  obligations  of  the  Government  enable 
those  who  want  gold  at  home  or  abroad  to  force  the  Government  to  go 
on  forever  paying  these  greenback  and  silver  demands  over  and  over 
again,  and  yet  they  may  never  be  retired.  The  only  remedy  left  to  the 
Government  under  the  present  circumstances  is  to  sell  bonds  in  advance 
and  corner  the  $500,000,000  greenbacks  and  Treasury  notes,  about  which 
there  is  no  possible  doubt  as  to  what  the  Government  has  got  to  do, 
and  then  wait  for  a  test  case  of  a  silver  certificate,  which  must  result  in 
the  same  conclusion  and  the  Treasury  be  confronted  with  $335,000,000 
more  of  demand  obligations,  while  the  Government,  which  the  un- 
thinking call  the  richest  in  the  world,  in  this  very  connection  finds 
itself  without  any  of  those  resources  of  a  bank  to  meet  its  debts  and 
literally  stripped  of  every  means  of  defense  except  its  power  to  tax  the 
people.    Was  there  ever  a  more  pitiable  spectacle  in  the  world? 

From  the  foregoing  we  have  discovered  some  of  the  disastrous  effects 
growing  out  of  our  organic  difficulties. 

We  have  observed : 

First.  That  on  account  of  doubt  gold  is  constantly  leaving  the  Treas- 
ury and  the  country. 

Second.  That  our  people  are  nursing  their  gold,  and  the  United  States 
Treasury  must  furnish  all  the  gold  that  is  wanted  for  any  purpose  what- 
ever, without  having  any  resource  except  the  power  to  tax  the  people, 
and  yet  must  continue  an  unlimited  amount  of  the  paying  business  of 
a  bank. 

How  shall  we  meet  the  first  difficulty  and  turn  the  stream  of  gold  now 
flowing  from  our  country  to  it,  and  stop  the  drain  on  the  Treasury  by 
our  own  people? 

There  is  and  will  be  but  one  cure,  and  that  is  an  unequivocal  measure 
of  value  approved  and  adopted  by  all  the  leading  commercial  nations  of 
the  world,  and  determined  by  all  human  experience  to  be  best  suited 
for  settling  the  balances  of  trade. 

So  long  as  political  parties  straddle,  and  so  long  as  it  is  possible  for 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


5 


*  Members  of  Congress  to  declare  that  the  bonds  of  the  United  States 
are  in  terms  payable  in  silver  as  well  as  gold,  and  so  long  as  one  branch 
of  Congress  or  the  other  shows  its  disposition  by  a  vote  to  take  advan- 
tage of  the  word  "coin,"  so  long  will  a  most  expensive,  indeed  possibly 
a  ruinous,  doubt  hang  over  this  country. 

Of  those  who  declare  that  we  are  on  a  gold  basis  and  are  going  to 
pay  our  obligations  in  gold  I  would  like  to  inquire,  Why  do  we  not  put  it 
in  black  and  white  and  save  this  country  millions  in  interest  every 
year,  and  secure  hundreds  of  millions  for  investments  to  develop  our 
vast  resources?  For  there  is  no  country  on  the  face  of  the  earth  with, 
our  citizenship,  civilization,  well-established  laws,  and  natural  resources 
(which  are  the  magnets  that  determine  where  capital  goes),  and  there- 
fore so  assuring  to  capital,  as  our  own,  if  the  measure  of  value  were 
only  unalterably  fixed. 

How  shall  we  overcome  the  second  difficulty  that  has  made  this  great 
country  ridiculous  and  may  render  it  financially  impotent  because  the 
people  demand  that  this  debt-doubling  process  shall  cease,  little  dream- 
ing of  the  consequences  that  must  ensue.  If  we  would  escape  the 
incomprehensible  trouble  in  either  event,  we  must  cease  the  anomalous 
position  of  filling  all  the  paying  functions  of  a  bank  without  any  of  its 
natural  resources. 

In  other  words,  the  two  remedies  for  our  organic  difficulty  are  these: 

First.  Refund  our  national  debt  in  long-time  2  per  cent  gold  bonds, 
furnishing  a  basis  of  circulation  for  our  national  banks  and  thereby 
giving  to  the  people  a  money  redeemable  in  gold  over  the  counter  of 
the  bank  of  issue,  thus  utterly  destroying  the  gold-hoarding  habit  at 
home  and  dissipating  the  last  vestige  of  doubt  and  fear  abroad. 

Second.  Get  the  Government  out  of  the  banking  business  by  con- 
verting the  greenbacks  and  Treasury  notes  into  metal  reserves  of  the 
national  banks,  and  send  the  silver  dollars  whirling  into  the  tills  of 
our  merchants  and  over  the  counters  of  our  banks. 

This  done,  the  credit  of  the  nation  can  not  be  threatened  in  times  of 
peace  and  ought  to  be  maintained  unimpaired  in  times  of  war.  Its 
business  would  then  be  just  what  that  of  New  York,  Chicago,  or 
San  Francisco  is — the  collection  of  money  for  the  payment  of  current 
expenses — and  every  dollar  of  the  $G25,000,000  of  gold  in  the  United 
States  would  be  free  money,  and  would  be  taken  from  the  safe-deposit 
boxes,  drawers,  and  stockings  and  turned  into  the  channels  of  commerce. 

So  far  as  I  have  been  able  to  discover  there  is  but  one  other  view 
entertained  witli  regard  to  our  organic  weakness,  and  that  has  been 
entertained  by  my  fellow-Republicans,  indeed  originated  with  them,  but 
which  is  far  more  political  than  philosophical,  and  which  will  not  stand 
the  test  of  fact  established  by  investigation. 

Beginning  with  President  Arthur,  we  were  warned  continually  of  the 
danger  that  would  grow  out  of  expanding  our  demand  obligations,  and 
all  recognized  economic  writers  pointed  out  the  danger  long  before 
President  Harrison  left  his  office.  Even  before  there  had  been  a  defi- 
ciency, Secretary  Foster  was  panic  stricken  and  the  Republican  Admin- 
istration had  prepared  and  was  ready  to  issue  $50,000,000  of  bonds  for 
no  other  purpose  than  to  build  up  the  credit  of  the  nation  by  increasing 
the  reserve. 

I  think  it  will  not  be  denied  by  anyone  who  will  take  the  trouble  to 
study  the  changes  from  1878  to  1893,  that  had  the  Government  begun 
in  1878  to  cover  the  depreciation  of  the  silver  coined  with  a  proper 
reserve  of  gold  and  continued  that  policy  down  to  1890  and  through  all 
the  operations  of  the  Sherman  Act  to  1893,  gradually  increasing  the 


G 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


reserve  up  to  about  8300,000,000.  there  would  have  been  no  apprehen- 
sion with  regard  to  the  ability  of  the  Government  to  meet  its  demand 
obligations,  even  though  it  was  compelled  to  sell  $150,000,000  of  bonds 
to  cover  the  deficit  growing  out  of  the  lack  of  revenue. 

If  this  be  true,  then  it  is  clear  that  it  was  simply  the  expanded  credit 
and  not  the  lack  of  revenue. 

After  much  honest  and  earnest  investigation  on  my  own  part,  I  am 
satisfied  that  the  lack  of  revenue  has  been  m  no  sense  the  cause  of  the 
trouble,  although  I  am  of  the  opinion  that  it  has  served  to  scrape  the 
scab  off  a  most  angry,  violent,  malignant,  and  festering  sore  and  kept 
it  a  running  one.  The  real  trouble  was  in  a  lack  of  that  prudence  on 
the  part  of  the  Government  that  a  good  banker  usually  exercises  in 
increasing  his  reserves  as  his  demand  obligations  expand. 

But  what  a  frightful  waste  this  prudent  policy  would  have  involved, 
the  locking  up  of  8300,000,000  of  money  for  no  other  purpose  than  the 
safe  conduct  of  a  most  unwise  and  foolish  policy.  Nor  would  the  pop- 
ular will  of  the  country  remain  silent  while  so  vast  a  sum  was  being 
withdrawn  from  the  channels  of  trade  and  the  currency  correspond- 
ingly contracted.  This  inherent  or  constitutional  evil  from  either  point 
of  view  was  to  breed  discontent  and  disaster. 

While  discussing  this  fundamental  difficulty,  it  may  be  well  to  allude 
to  the  objection,  that  has  been  urged  to  the  gold  cure  here  proposed,  on 
the  part  of  the  so-called  bimetallist,  but  the  more  accurately  described 
silver  inonometallist,  and  that  is  an  international  bimetallic  arrange- 
ment. 

To  these  so-called  biinetallists  I  think  we  may  confidently  say  that  so 
far  as  the  public  sentiment  of  this  country  goes  two  things  have  been 
established  beyond  all  peradventnre — 

First.  That  the  American  people  are  unalterably  opposed  to  the  free 
and  unlimited  coinage  of  silver  without  an  international  arrangement. 

Second.  That  if  this  country  hopes  to  secure  an  international  arrange- 
ment for  the  free  coinage  of  silver  at  any  ratio,  they  will  be  far  more 
successful  in  their  endeavor  to  do  so  if  they  place  themselves  squarely 
upon  the  gold  standard,  showing  to  all  the  rest  of  the  world  that  there 
is  absolutely  no  possibility  of  this  country  adopting  the  free  coinage  of 
silver  while  the  other  great  commercial  nations  of  the  earth  take  all 
the  gold  and  leave  us  nothing  but  silver.  The  way  to  reason  with  the 
selfishness  of  nations  is  to  exercise  the  power  of  compulsion,  and  the 
mere  possibility  that  this  great  country  may  in  some  moment  of  aberra- 
tion adopt  the  free  coinage  fallacy  stands  in  the  way  and  will  do  more 
to  defeat  an  international  arrangement  than  all  other  causes  combined. 

Then  there  is  another  class,  who  would  sacrifice  everything  to  con- 
venience, instead  of  all  convenience  to  principle,  and  who  urge  the 
inconvenience  of  using  metal  instead  of  paper  money,  when,  as  a  mat- 
ter of  fact,  the  salutary  effect  of  having  the  metal  among  our  people 
offsets  it  tenfold.  Among  these  are  even  those  who  would  not  propose 
to  have  anything  but  good  paper  money,  and  yet  urge  the  inconsequen- 
tial consideration  of  convenience  while  a  great  principle  is  involved, 
even  the  credit  of  the  nation.  The  question  of  convenience  can  only 
be  considered  after  the  problem  has  been  solved  upon  sound  economic 
principles. 

Having  pointed  out  what  seems  to  me  to  be  the  organic  disorders, 
and  dissipated  the  erroneous  diagnosis  of  those  who  claim  that  all  our 
woe  is  due  to  lack  of  revenue,  and  having  pointed  out  that  the  very 
objection  of  the  theoretical  bimetallist  is  really  his  best  if  indeed  not 
his  only  hope  of  success  in  securing  an  international  arrangement,  and 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


7 


having  brushed  away  the  dewy  suggestion  of  convenience,  I  think  we 
'have  clearly  discerned  the  true  organic  weaknesses  from  which  we  are 
suffering. 

These  being  the  fundamental  difficulties,  there  can  be  no  question 
about  the  remedies  that  have  been  suggested. 

Assuming  that  our  measure  of  value  has  been  placed  beyond  the 
reach  of  cavil  and  forever  settled,  and  our  Government  has  no  connec- 
tion whatever  with  the  currency  of  our  country  except  as  trustee,  let  us 
proceed  to  inquire  what  the  functional  trouble  is  affecting  our  monetary 
system. 

I  am  one  of  those  who  believe  that  we  have  one  of  the  best  banking 
systems  in  the  world  in  some  respects,  and  who  also  believe  that  it  is 
equally  bad  in  others.  All  the  superficial  defects,  all  the  apparent 
evils,  like  eruptions  on  the  human  body,  which  are  due  to  disorders  of 
the  blood,  are  due  either  to  too  much  or  too  little  money  to  handle  the 
commerce  of  this  great  country  at  any  given  time. 

Any  banking  system  like  our  own,  which  results  in  a  currency  panic 
in  one  city  or  several  localities  or  possibly  all  over  the  United  States 
every  time  there  is  the  slightest  commotion  in  any  department  of  com- 
merce, is  like  an  epileptic  patient,  who  goes  into  fits  upon  the  slightest 
provocation. 

Everybody  asks,  "What  is  the  trouble?"  And  everybody  who  has 
taken  the  time  and  trouble  to  investigate  the  subject  answers.  "The 
want  of  a  sound,  elastic  currency." 

VTe  have  reached  a  point  in  this  matter  that  demands  patriotic  and 
heroic  action. 

We  should  at  once  acknowledge  every  established  fact  and  follow 
every  vein  of  truth  wherever  it  may  lead,  if  happily  we  may  find  a 
solution  to  this  intricate  problem,  and  save  our  country  from  the  stress 
of  a  continual  financial  storm  and  bring  back  confidence  in  us  through- 
out the  world  and  secure*the  blessing  of  prosperity  to  our  own  people. 

It  has  been  with  this  spirit  that  I  have  pursued  my  study  and  indulged 
my  thought,  which  lias  stripped  me  of  some  pet  notions  and  dislodged 
many  of  my  preconceived  ideas  that  were  born  of  political  bias  or  were 
the  children  of  wishes  growing  out  of  party  zeal  or  the  inheritance  of 
some  tradition  partially  true  or  utterly  false.  And  now,  when  I  pass 
my  country  in  review  and  contemplate  the  stupendous  losses  and  fright- 
ful havoc  of  recent  years,  I  am  impelled  to  hope  that  Diogenes  may 
again  appear  with  his  candle  and  not  cease  his  search  until  he  has 
found  a  clear,  frank,  and  honest  political  platform  upon  which  the 
American  people  can  fight  this  thing  out,  as  they  are  longing  to  do. 

As  in  1858  Abraham  Lincoln  foresaw  that  this  Government  could  not 
endure  half  slave  and  half  free,  so  now  it  is  clear  that  the  domestic 
prosperity  and  commercial  supremacy  of  this  nation  among  all  the 
nations  of  the  earth  wait  alone  upon  our  unequivocal  declaration  and 
irrevocable  decision  as  to  our  measure  of  value. 

The  American  people,  strictly  honest,  highly  intelligent,  and  supremely 
brave,  are  in  favor  of  the  gold  standard  as  a  measure  of  value  because 
all  history  has  shown  it  the  most  stable  metal,  all  experience  has 
proved  it  best  suited  for  settling  the  balances  of  trade,  and  all  the  lead- 
ing commercial  nations  of  the  earth  have  approved  and  adopted  it. 
And  while  our  people  are  in  favor  of  the  use  of  so  much  paper  and  silver 
money  as  is  consistent  with  prudence  and  the  demands  of  business, 
they  are  unalterably  opposed  to  the  free  and  unlimited  coinage  of  silver 
except  upon  the  single  condition  of  an  international  arrangement,  to 
which  they  are  ready  and  anxious  to  give  their  hearty  support. 


8 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


In  discussing  this  question  we  can  not  take  the  position  of  the  school- 
master, the  theorist,  or  the  dogmatist;  but  with  a  full  and  perfect 
knowledge  of  our  present  currency,  our  individual  banking  system,  the 
extent  of  our  country,  and  the  magnitude  of  our  commerce,  we  should 
attempt  the  solution  of  this  most  difficult  problem. 

The  experience  of  other  countries,  so  far  as  they  have  established  prin- 
ciples that  are  equally  adapted  to  our  condition,  are  valuable;  but  we 
can  not  assume  that  everything  that  has  worked  well  elsewhere  will 
necessarily  work  equally  well  here.  It  is  a  question  very  largely  of 
discrimination  and  adjustment.  However,  it  is  no  evidence  that  because 
conditions  elsewhere  are  very  different  from  our  own,  that  their  expe- 
rience is  of  no  value  to  us;  or,  that  what  has  been  well  done  there,  can 
not  be  equally  well  done  here.  Common  sense  here,  almost  more  than 
anywhere  else,  must  serve  as  a  ballast  to  theory.  Prejudice  must  give 
way  to  truth,  and  selfishness  to  principle. 

To  suppose  that  the  people  of  the  United  States  will  give  up  a  secured 
currency  in  a  day,  a  week,  a  year,  or  a  decade  even,  for  a  credit  currency, 
is  a  most  violent  presumption,  even  if  such  a  thing  were  sound  in  prin- 
ciple. Again,  even  if  they  were  willing  to  do  so — and  credit  currency 
is  sound  beyond  a  peradventure  in  principle — I  do  not  believe  that  such 
a  step  would  be  wise. 

Banking  is  a  development;  it  is  the  result  of  evolution;  and  each 
of  the  great  commercial  nations  has  its  own  system  of  banking  which 
is  still  in  the  process  of  evolution.  While  our  movement  should  be  in 
the  direction  of  radical  changes,  the  movement  itself  should  not  be 
radical,  so  that  what  may  be  proposed  may  be  tested  and  gradually 
adjusted  to  the  vast  and  complicated  factors  involved  in  our  commerce 
and  banking. 

That  any  system  of  secured  currency  does  lack  and  must  lack  all  the 
elements  of  elasticity  I  presume  no  one  here  doubts.  If,  however,  there 
are  those  who  think  that  our  system  has  ever  responded  and  con- 
tracted as  the  demands  of  commerce  required,  they  have  only  to  con- 
sult our  bank-note  circulation  by  years  and  be  convinced  that  it  has 
practically  been  controlled  by  the  normal  demand  of  money  on  the  one 
hand  and  the  profit  on  the  bonds  on  the  other,  and  has  often  been 
lowest  when  it  ought  to  have  been  highest,  and  highest  when  it  ought 
to  have  been  lowest.  There  is  no  pretense  that  it  has  been  taken  out 
every  fall  when  the  crops  were  to  be  removed  and  has  automatically 
contracted  when  they  were  disposed  of.  It  was  $14G,000,()00  in  18G5; 
$340,000,000  in  1875;  $301,000,000  in  1877;  $352,000,000  in  1882,  and 
$122,000,000  in  1890.    It  is  now  about  $200,000,000. 

No  system  of  currency  will  ever  have  the  quality  of  true  elasticity 
which  does  not  reflect  commercial  activitj'-  and  which  must  pay  a  tax 
when  it  is  idle,  hence  the  normal  demand  throughout  the  year  will  be 
the  only  material  factor  affecting  the  issue. 

It  will  readily  be  seen  why  we  have  money  panics  somewhere  nearly 
all  the  time  and  everywhere  some  of  the  time.  Under  a  properly  regu- 
lated system  I  think  one  may  safely  say  there  should  never  be  a  cur- 
rency famine  anywhere  at  any  time. 

The  great  bulk  of  the  money,  the  normal  money  of  any  country,  may 
well  be  gold,  silver,  and  secured  currency,  no  one  of  which,  nor  all  of 
which  put  together,  are  elastic.  But  to  properly  and  adequately  pro- 
vide for  the  extra  demand  for  money  to  handle  crops  and  manufactures, 
to  meet  the  disturbed  conditions  in  commerce  and  the  flurries  in  finance, 
something  more  is  needed  and  demanded. 

Again,  it  is  admitted  that  it  will  not  be  very  long  before  the  national 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


9 


debt  will  be  paid  off.  We  all  remember  what  eon  stern  ation  there  was 
throughout  the  whole  country  about  contraction  when  President  Har- 
rison was  paying  off  the  national  debt  at  the  rate  of  about  $100,000,000 
a  year  during  part  of  his  Administration.  Our  system  had  absolutely 
no  power  of  self- adjustment.  Some  were  demanding  that  we  have  State 
bonds  for  security;  some  suggested  city  bonds;  some  urged  railroad 
bonds;  some  sought  relief  in  the  repeal  of  the  tax  on  State  banks,  while 
the  bankers  met  at  Baltimore  and  issued  the  plan  bearing  that  name. 
All  was  confusion;  all  was  chaos;  nothing  was  done. 

Now  that  there  has  been  a  slight  increase  in  our  bonded  indebtedness, 
some  talk  as  though  it  were  to  continue  throughout  eternity.  In  the 
light  of  a  surplus  revenue  of  $1,333,000,000  from  1879  to  1889,  such  a 
suggestion  is  idle  talk,  for  everybody  knows  that  if  the  Government 
were  disposed  to  do  so  it  could  wipe  out  this  entire  debt  in  five  years, 
and  that  to  distribute  the  liquidation  over  a  period  of  ten  years  would 
render  the  burden  so  light  as  not  to  be  noticed.  Nothing  is  more  cer- 
tain than  the  absolute  necessity  of  some  system  to  succeed  the  present 
one  in  the  course  of  time,  and  nothing  is  more  important  than  that 
there  should  be  an  evolution  in  passing  from  one  to  the  other  and  not  a 
revolution,  with  all  its  shocks,  misfortunes,  disasters,  and  ruin. 

As  a  preface  to  what  I  am  going  to  say,  I  will  venture  the  assertion 
that  you  can  not  mention  the  matter  of  credit  money  in  any  chance 
meeting  of  a  dozen  business  men  that  some  of  them — indeed,  in  most 
instances  a  majority  of  them — will  not  shrug  their  shoulders  and  think 
of  what  they  may  remember,  if  age  will  permit,  or  what  their  fathers 
have  told  them  about  "red  dog,"  "yellow  dog,'7  or  some  other  dog 
money,  as  though  they  had  heard  or  read  all  about  all  kinds  of  money, 
when,  as  a  matter  of  fact,  all  they  know  about  it  is  that  there  really 
was  "red  dog"  money,  and  that  the  dog  died.  Neither  the  cause  nor 
the  circumstances  surrounding  his  death  seem  ever  to  have  entered 
their  minds. 

But,  discarding  the  follies  of  the  past,  let  us  inquire  into  our  necessi- 
ties and  misfortunes  with  a  determination  of  overcoming  them,  if  pos- 
sible. 

As  a  preliminary  but  fundamental  truth,  I  suppose  all  my  listeners 
realize  that  there  is  not  the  slightest  difference  between  a  bank  which 
has  $100,000  capital  and  $100,000  of  deposits  subject  to  check,  with 
$75,000  of  its  deposits  loaned  out  on  sixty-day  two-name  paper,  and 
$25,000  reserve,  and  a  bank  which  has  $100,000  capital  and  $100,000  of 
credit  notes  outstanding,  $75,000  of  which  having  been  loaned  to 
identically  the  same  men  as  in  the  former  case  and  on  the  same  condi- 
tions— sixty-day  two-name  paper,  with  $25,000  of  notes  turned  into 
cash  for  a  reserve  against  the  $100,000  of  notes. 

When  there  are  abundant  deposits  there  will  be  no  notes  issued 
under  ordinary  circumstances,  but  where  there  is  little  wealth  in  the 
form  of  money,  but  great  wealth  in  other  forms  and  much  money  needed 
to  develop  it,  there  notes  will  be  issued. 

This  fact  can  be  illustrated  by  a  comparison  of  the  national  banks 
of  the  city  of  New  York  in  1884  having  $40,000,000  of  capital,  with  all 
the  national  banks  of  the  State  of  Massachusetts,  outside  of  Boston, 
having  $45,000,00.0  of  capital.  In  the  former  the  deposits  amounted  to 
$184,000,000,  and  the  banks'  circulation  was  but  $13,200,000;  while  in 
the  latter  the  deposits  were  but  $45,400,000,  and  the  circulation  out- 
standing was  $35,800,000 — about  three  times  as  great. 

Again,  during  the  operation  of  the  Suffolk  system  at  Boston,  which 
was  before  Yankee  ingenuity  was  crystallized  into  millions,  and  every 


10 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


river,  stream,  and  rivulet  was  turned  into  a  source  of  wealth,  the  country 
banks  had  no  deposits  to  speak  of,  and  many  of  them,  considering  the 
inconvenience  of  travel  and  the  slowness  of  mail,  were,  speaking  from 
our  present  facilities  for  both,  thousands  of  miles  away.  Some  of  the 
Maine  banks  with  an  actual  capital  and  downright  honesty,  were, 
though  more  remote  then  in  a  business  sense  than  California  is  now, 
issuing  their  notes  and  clearing  at  Boston,  thus  enabling  the  sturdy 
sons  of  that  then  far-off  region  to  develop  the  great  resources  of  that 
section.  So  it  was  with  nearly  all  of  New  England,  but  the  current 
redemption  which  the  system  enforced  kept  their  money  absolutely 
good. 

Allow  me  to  call  your  attention  to  the  condition  of  the  Bank  of 
France  January  1, 1895.  Its  capital  is  $36,500,000,  with  deposits,  public 
and  private,  of  $103,480,000;  its  outstanding  notes,  $701,140,000.  The 
amount  of  cash  on  hand  is  $636,980,000,  showing  that  the  bills  receiv- 
able taken  in  for  the  notes  issued  have  been  paid  off  and  the  notes  are 
still  outstanding. 

It  must  not  be  forgotten  in  passing  that  the  legal  note  issue,  at  pres- 
ent, of  the  bank  is  $800,000,000;  but  it  do  not  seem  to  issue  it  and 
foolishly  loan  it  just  because  it  can  do  so.  It  will  be  observed  that  it 
had  $100,000,000  still  unissued. 

Again,  it  must  be  remembered  that  there  is  not  one  dollar  of  specific 
security  for  any  part  of  the  whole  $800,000,000  issue,  which  is  a  legal 
tender  so  long  as  redemption  is  maintained.  This  vast  issue  rests 
upon  and  is  protected  by  the  bills  receivable  taken  in  exchange  for  the 
notes,  or  the  proceeds  of  those  bills  receivable  which  have  already  been 
paid  off. 

Great  Britain,  too,  has  her  system  of  credit  notes  and  metal  method 
of  expansion.  The  banks  of  England  and  Wales,  outside  the  Bank  of 
England,  have  the  power  to  issue  credit  money  amounting  to  £4,813,400, 
or  about  $25,000,000.  But  on  the  1st  day  of  January  they  had  out- 
standing only  $10,000,000.  leaving  credit  money  to  be  issued,  if  needed, 
amounting  to  $15,000,000. 

The  Scotch  banks  have  an  authorized  issue  of  credit  money  amount- 
ing to  $13,381,750,  and  on  the  1st  day  of  January  had  outstanding  only 
$6,985,075,  leaving  to  their  credit  and  unissued  about  $7,000,000,  which 
could  be  put  out  if  conditions  called  for  it. 

The  Irish  banks  have  an  authorized  circulation  of  credit  money  amount- 
ing to  $31,772,470,  and  on  the  1st  day  of  January  there  was  issued  only 
$15,000,000,  leaving  to  their  credit  and  unissued  $16,772,470. 

From  these  facts  is  it  not  reasonable  to  conclude  that  the  same  degree 
of  caution  is  exercised  in  issuing  credit  notes  as  in  loaning  the  deposits 
of  the  banks?  A  careful  conrparison  of  the  figures  shows  that  on  the 
1st  day  of  January,  1895,  they  had  issued  less  than  50  per  cent  of  their 
authorized  credit  circulation,  which  aggregates  about  $70,000,000. 

It  must  not  be  forgotten  in  this  connection  that  Ave  are  now  dealing 
with  a  country  of  vast  accumulations  and  immense  bank  deposits.  The 
prudence  of  the  credit  issues  of  Great  Britain  are  certified  to  by  the 
fact  that  in  Scotland,  the  home  of  the  system,  there  have  never  been 
but  three  bank  failures  worth  mentioning. 

In  the  beginning  of  my  comment  upon  Great  Britain  I  alluded  to 
her  system  of  metallic  expansion.  The  position  of  the  Bank  of  England 
is  a  most  unique  one,  in  that  when  they  need  more  money  or  gold  in 
England,  London  being  the  clearing  house  of  the  world,  it  is  obtained 
by  simply  raising  the  rate  of  interest  to  a  point  that  will  attract  gold 
from  the  money  centers  of  the  Continent,  and  against  this  the  issuing 
department  puts  out  its  Bank  of  England  notes. 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


11 


Notwithstanding  the  various  facilities  for  meeting  exigencies,  tlie 
Bank  of  England,  owing  to  the  fact  that  a  limit  Avas  placed  upon  its 
issuing  power  by  the  act  of  1844,  which  it  was  supposed  at  the  time 
would  forever  end  all  panics,  the  bank  suspended,  as  it  is  called  over 
there,  and.  the  limit  set  aside  October  25, 1847 ;  November  12, 1857,  and 
May  12,  18GG.  In  February,  18G1,  and  in  May  and  September,  1864, 
the  condition  became  critical  also,  while  in  1873  the  suspension  of  the 
act  seemed  certain  for  some  days.  By  many  it  is  now  thought  that  it 
was  a  mistake  to  set  a  limit;  for,  on  all  occasions  when  the  emergency 
has  arisen,  she  has  suspended  the  act  and  issued  the  requisite  amount 
of  money  to  meet  the  demand. 

At  the  formation  of  the  German  Empire,  when  the  financial  arrange- 
ment was  being  adjusted,  the  English  act  of  1844  was  largely  followed, 
except  in  this  particular  power  of  issuing  credit  money,  for  they  had 
learned  by  experience  and  observation  of  the  English  system  that 
there  was  no  limit  except  that  set  by  necessity  when  the  crises  recur. 

No  limit  was  fixed,  but  rules  and  restraints  were  established  to  keep 
it  down  to  a  certain  point— 385,000,000  marks,  or  about  $200,000,000  of 
nionej-  which  was  apportioned  among  the  several  banks,  with  the  privi- 
lege of  passing  the  limit  if  cash  of  a  certain  description  was  held;  but, 
having  passed  the  limit  of  issue  fixed  without  cash  to  cover,  the  only 
penalty  was  a  tax  of  5  per  cent  per  annum  upon  the  notes  issued. 
This  limit  has  several  times  been  passed  by  the  smaller  banks,  and 
also  by  the  Beischbank  itself,  the  institution  representing  the  Empire. 
This  happened  in  the  case  of  the  Beischbank  in  December,  1881;  in 
September  and  October,  1882;  in  December,  1884;  in  January,  1885; 
in  December,  1886,  and  three  times  in  the  latter  part  of  1889.  The 
overissue  September  30,  1895,  was  $9,200,000;  October  7,  1895,  was 
$4,100,000;  December  31,  1895,  was  $29,400,000.  On  some  occasions 
the  issues  were  much  beyond  the  fixed  limit,  and  it  is  now  certain  that 
in  several  instances  the  German  community  was  saved  from  the  shock 
of  panic  and  the  spasm  of  contraction  which  would  have  been  inevitable 
if  they  had  been  acting  under  the  English  banking  act  of  1844. 

But  nearer  home,  even  at  our  very  doors,  we  can  find  an  apt  illus- 
tration of  automatic  banking  currency. 

Canada  has  no  mint  of  her  own,  but  uses  our  gold  pieces  as  her 
standard  money.  The  Canadian  system  is  founded  upon  the  Scotch 
system,  many  of  her  leading  citizens  and  most  x>rominent  bankers  being 
of  Scotch  origin. 

The  banking  capital  of  Canada  amounts  to  $62,190,391,  or  bears 
about  the  same  proportion  to  their  population  that  our  banking  capital 
bears  to  our  own. 

The  Canadian  banks  have  the  right  to  issue  credit  money  to  an 
amount  equal  to  their  paid  up  and  unimpaired  capital,  which  would  be 
$62,196,391.  But,  as  a  matter  of  fact,  they  have  never  exceeded 
$38,000,000,  and  the  greatest  expansion  in  any  one  year  to  move  the 
crops  was  $7,000,000,  while  January  1,  1896,  it  was  only  $32,565,179, 
about  one-half  the  limit. 

Each  of  the  banks  is  interested  in  getting  out  its  own  money,  and 
therefore  is  equally  interested  in  keeping  the  current  of  redemption 
running  strongly  all  the  time  over  the  counters  of  all  the  other  banks. 

It  is  a  most  striking  fact  that  while  we  are  scarcely  ever  out  of  a 
money  panic,  and  consequently  a  currency  famine,  Canada  does  not 
know  what  either  means. 

It  would  seem  from  all  these  illustrations — the  Suffolk  system,  the 
Bank  of  France,  the  Scotch  banks,  the  Irish  banks,  the  English  banks, 
the  German  banks,  and  the  Canadian  banks — we  may  fairly  conclude 


12  OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


that  credit  currency  is  as  good  as  any  in  the  world,  and,  indeed,  in 
case  of  war,  when  securities  often  go  out  of  sight,  it  is  better,  because 
resting  upon  sixty-day  bills  receivable,  which  are  almost  certain  of  pay- 
ment without  delay  or  loss,  at  least  a  very  great  portion  of  them. 

To  the  man  whose  reply  is — and  this  is  the  only  answer  to  this  array 
of  evidence — the  plan  may  work  well  in  all  the  rest  of  the  world  but 
would  not  do  for  us,  I  desire  to  say  that  such  an  admission  is  an  impeach- 
ment of  our  civilization — a  plea  of  guilty  to  the  charge  that  we  are  a 
violent  people — a  confession  that  our  prudence  and  money- saving  qual- 
ities are  overshadowed  by  those  of  every  other  nation,  which  is  not 
true — a  declaration  that  we  are  unfit  for  self-government,  and  conse- 
quently self  control,  which  more  than  a  hundred  years  of  the  most  glo- 
rious history  of  the  human  race  contradicts  and  rebukes. 

Would  any  man  seriously  contend  that  the  president,  cashier,  or 
board  of  directors  of  a  bank  would  be  more  foolish  in  loaning  the 
notes  of  a  bank  than  its  deposits,  when  circumstances  will  bring  them 
to  its  counter  for  redemption  with  the  certainty  and  promptness  of  the 
checks  drawn  against  its  deposits? 

"But,"  said  one  of  the  Banking  and  Currency  Committee  the  other 
day,  usuch  an  expansion  will  lead  to  unwise  speculations  and  all  its  evil 
consequences."  What  has  just  been  said  clearly  shows  there  would  be 
and  could  be  no  undue  expansion  of  money  calling  for  an  immediate 
metal  redemption  any  more  than  there  is  to-day. 

Have  you  ever  inquired  into  the  subject  of  booms  and  financial  cata- 
clysms with  a  view  of  ascertaining  what,  if  any,  connection  they  have 
had  with  money — real  money — money  currently  redeemed?  Have  you 
ever  thought  it  out  to  the  last  analysis  and  found  that  the  increase  of 
money  has  had  absolutely  no  connection  with  the  great  speculations 
throughout  the  world  during  the  past  thirty  years ;  but  that  every  one  of 
them  has  been  due  to  our  gambling  instinct,  encouraged  by  an  undue 
expansion  of  credit,  and  invariably  long  credit? 

Have  you  ever  thought  of  it?  There  has  been  absolutely  no  connec- 
tion between  the  per  capita  circulation  in  the  United  States  and  the 
various  booms  and  consequent  shrinkages.  From  1865  to  1873  our  cir- 
culation contracted  from  20.57  per  capita  to  18.04  per  capita.  In  1885 
and  1893,  respectively,  our  circulation  was  23.02  and  23.85  per  capita. 

Increased  circulation  had  absolutely  nothing  to  do  with  the  Birming- 
ham, Dallas,  Kansas  City,  Wichita,  Omaha,  Minneapolis,  St.  Paul, 
Duluth,  Spokane,  Seattle,  Tacoma,  and  Los  Angeles  speculations  and 
reactions;  nor  a  thousand  others  in  the  United  States  and  elsewhere. 

Increased  circulation  had  nothing  to  do  with  the  Australian  bubble. 
Increased  circulation  had  nothing  to  do  with  the  South  American  gam- 
bles. Increased  circulation  had  absolutely  nothing  to  do  with  that 
unlimited  buying  of  the  London  market,  from  1886  to  1890,  when  you 
could  sell  almost  anything  from  a  beer  saloon  to  an  undiscovered  con- 
tinent in  that  market. 

Now,  since  a  system  of  credits  in  the  form  of  checks  and  drafts  per- 
lorms  over  90  per  cent  of  our  work  and  constitutes  the  vital  factor  in 
effecting  nearly  all  our  commercial  exchanges,  and  since  we  have  dis- 
covered that  all  the  leading  commercial  nations  of  the  world  have  suc- 
cessfully employed  credit  money  based  upon  the  liquid  wealth  of 
commerce  and  have  thereby  escaped  the  difficulties  and  misfortunes 
necessarily  growing  out  of  an  inelastic  currency,  and  since  an  errone- 
ously supposed  connection  between  currently  redeemed  credit  money 
and  credit  expansion  does  not  exist,  in  fact  that  they  bear  no  relation 
whatever  to  each  other,  have  we  not  found  a  remedy  for  our  ever- 
recurring  panics  and  currency  famines? 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


13 


For  these  it  will  certainly  prove  a  specific  cure,  while  for  our  whole 
people  a  source  of  profit  and  advantage  that  can  not  be  measured  or 
comprehended  because  of  a  better  distribution  of  the  normal  amount 
of  our  money  and  a  natural,  constant,  and  adequate  supply  at  every 
point  where  it  is  needed  to  handle  our  products  or  develop  our  resources. 

Having  discovered  our  ills  and  the  proper  remedies,  it  is  our  task, 
taking  into  account  every  fact  and  condition,  to  draft  a  bill  that  will 
do  what  we  have  found  necessary  to  preserve  our  financial  honor  and 
conserve  our  commercial  prosperity. 

First.  We  have  seen  our  vast  national  banking  interest,  consisting 
of  3,712  institutions,  with  resources  amounting  to  $3,423,029,343.03, 
and  transacting  a  business  of  more  than  $60,000,000,000  per  annum, 
between  the  rising  and  setting  of  the  sun,  pass  from  one  political  repre- 
sentative of  one  Administration  to  that  of  another,  when  our  banking 
interests,  as  a  matter  of  fact,  should  be  free  of  and  unaffected  by  politi- 
cal caprice  or  change. 

Second.  We  have  found  that  there  is  a  possibility  of  doubt  about 
our  measure  of  value  when  it  ought  to  be  undoubted,  unequivocal, 
unchangeable. 

Third.  We  have  found  our  money  hoarded  by  banks  and  individuals 
and  congested  in  the  financial  centers  when  confidence  should  take  the 
place  of  fear  and  money  seek  the  channels  of  trade. 

Fourth.  We  have  found  our  Government  with  a  bonded  debt  of 
$847,362,920,  bearing,  mainly,  4  and  5  per  cent  interest,  when  it  ought 
to  be  funded  into  a  popular  loan  at  2  per  cent  as  a  basis  of  circulation, 
saving  over  $15,000,000  annually  to  our  people. 

Fifth.  We  have  found  our  Government  bound  to  redeem  an  unlimited 
amount  of  obligations,  with  no  power  to  meet  them  except  by  taxing 
the  people,  when  it  ought  to  have  no  demand  obligations  except  current 
expenses. 

Sixth.  We  have  found  our  Treasury  warehousing  $500,000,000  of 
silver  coin  value  when  it  ought  to  be  circulating  among  our  people. 

Seventh.  We  have  found  our  Government  a  guarantor  of  the  obliga- 
tions of  our  banks  when  it  should  be  acting  only  as  trustee  for  the  note 
holders. 

Eighth.  We  have  found  eight  different  kinds  of  money  in  circulation 
when  there  should  be  but  two  besides  gold  and  silver. 

Ninth.  We  have  found  a  system  of  currency  as  fixed  in  quantity  as 
the  stars,  never  varying  necessarily  with  the  months  or  the  years  accord- 
ing to  the  demand,  but  which  may  all  be  withdrawn  to-morrow,  if 
the  bonds  don't  pay,  when  our  currency  should  increase  and  decrease 
with  the  ever- varying  exchanges  of  our  wealth.  In  verification  of  this 
it  is  well  to  observe  that  during  those  years  of  most  wondrous  devel- 
opment—from 1884  to  1890— our  note  issues  fell  from  $325,000,000  to 
$123,000,000. 

Tenth.  We  have  seen  legitimate  commerce  and  development  languish 
because  of  the  restraint  and  high  rates  resting  upon  money,  when  it 
should  automatically  spring  into  activity  at  a  reasonable  rate  of  interest 
as  the  demands  arise  and  disappear  when  the  work  is  done. 

That  all  these  difficulties  may  be  overcome  without  in  any  way  dis- 
turbing present  conditions,  existing  laws,  or  recognized  decisions, 
except  so  far  as  engrafting  a  credit  system  of  money  upon  our  present 
secured  one  may  do  so,  bill  6442  has  been  prepared,  and  the  sections 
will  now  be  considered  in  their  order: 

Section  1.  Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled,  That  there  shall  he,  aud  there  is  herehy, 


14 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


created  and  established  a  Department  of  Finance,  which  shall  have  entire  and  exclu- 
sive control  and  management  of  all  national  hanks,  their  right  to  take  out  secured 
circulation  and  issue  their  notes. 

Sec.  2.  That  there  shall  he  three  Ministers  of  Finance  who  shall  take  the  place  of 
the  Comptroller  of  the  Currency  and  constitute  a  Board  of  Finance;  and  said  Board 
of  Finance  shall  conduct  the  said  Department  of  Finance.  That  said  Ministers  of 
Finance  shall  he  appointed  by  the  President,  by  and  with  the  advice  and  consent  of 
the  Senate,  and  the  term  of  office  shall  be  for  a  period  of  twelve  years  at  a  salary 
of  $10,000  per  annum.  That  the  terms  of  the  first  three' Ministers  shall  be  for  twelve, 
eight,  and  four  years,  respectively.  The  Minister  being  appointed  for  twelve  years 
and  his  successors  shall  be  known  as  First  Minister  of  Finance,  and  he  shall  preside 
at  all  meetings  of  the  Board  of  Finance;  and  the  remaining  two  Ministers  shall  be 
known  as  Associate  Ministers  of  Finance. 

These  two  sections  refer  to  the  same  subject-matter,  and  while  they  ' 
make  no  material  changes  in  the  law  the  effect  of  them  would  certainly 
be  to  take  the  bauking  interests  of  the  country  out  of  politics,  as  only 
one  Minister  can  be  appointed  during  each  Presidential  Administration ; 
and  they  also  insure  a  continuing  intelligent  and  wise  supervision  of 
the  banking  interests  and  a  most  valuable  aid  in  all  future  financial 
legislation. 

Whether  under  the  supervision  of  a  single  individual,  however  capa- 
ble, banks  have  not  been  permitted  to  drift  into  irretrievable  ruin  on 
the  one  hand  and  often  placed  in  the  hands  of  receivers  without  war- 
rant on  the  other,  to  the  very  great  loss  of  all  concerned,  no  one  can 
ever  definitely  know.  But  inasmuch  as  the  national-banking  act 
requires  the  association  of  at  least  five  persons  to  form  a  bank,  the 
Government  has  always  presumed  there  was  wisdom  and  safety  in  a 
consulting  board  as  against  a  single  individual. 

Sec.  3.  That  any  national  bank  now  doing  business,  or  any  other  financial  institu- 
tion doing  a  similar  business,  or  any  number  of  persons,  may  in  accordance  with 
existing  law,  so  far  as  the  same  is  consistent  with  this  act,  organize  upon  the  follow- 
ing terms  and  conditions : 

If  any  corporation  described  as  aforesaid  shall  deposit  with  the  United  states  Gov- 
ernment any  of  the  United  States  bonds  now  outstanding,  or  any  that  may  be  here- 
afterissued  under  existing  law,  which,  at  their  market  value,  shall  exceed  the  capital 
of  said  corporation  by  5  per  cent,  the  United  States  Government  shall  issue  to  said 
corporation,  in  lieu  of  said  bonds  so  deposited,  2  per  cent  United  States  Government 
bonds  equal  in  amount  to  such  market  value,  both  principal  and  interest  of  said 
new  bonds  being  payable  in  gold;  and  said  new  bonds  shall  thereupon  be  deposited 
with  the  United  States  Government,  and  circulation  known  as  United  States  Govern- 
ment bond  notes  shall  be  issued  to  said  corporation  in  an  amount  equal  to  the  paid-up 
capital  of  said  corporation,  in  denominations  of  $10  or  multiples  thereof. 

The  first  paragraph  of  this  section  does  not  in  any  way  alter  the  con- 
ditions upon  which  a  national  bank  may  be  organized.  Under  the 
second  paragraph  any  existing  bank  can  convert  the  bonds  it  now 
holds  into  gold  bonds  for  circulation,  or  a  new  bank  may  deposit  for 
the  same  purpose  any  of  the  outstanding  bonds,  which,  at  their  market 
value,  will  exceed  the  paid-up  capital  by  5  per  cent,  and  obtain  therefor 
circulation  equal  to  its  capital. 

Why  fund  the  national  debt  into  gold  bonds  ? 

First.  To  forever  settle  the  standard  for  the  measure  of  value  in  this 
country,  which  will  be  in  doubt  in  the  minds  of  all  foreigners  so  long  as 
men  assert  coin  means  silver  as  well  as  gold. 

Second.  To  take  advantage  of  what  we  are  actually  doing  to-day 
(maintaining  a  gold  standard)  at  great  expense  on  account  of  the  doubt 
existing,  and  save  for  the  people  in  addition  every  year  more  than 
$15,000,000  in  interest. 

Third.  To  have  our  secured  circulation  based  on  so  low  a  rate  of 
interest  as  to  preclude  such  an  appreciation  in  the  value  of  the  bonds 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


15 


as  td  induce  banks  to  sell  them  and  retire  the  notes,  thereby  contract- 
ing tbe  volume  of  money  and  disturbing  the  business  conditions. 

Why  have  no  denominations  of  bond  notes  lower  than  810? 

First.  Because  the  presence  and  use  of  the  largest  possible  amount  of 
metal  among  the  people  exercises  a  most  salutary  influence. 

Second.  We  have  about  $500,000,000  of  silver  on  hand,  and  it  could 
be  made  to  do  the  work  of  the  one-dollar  bills,  amounting  to  $40,960,091 ; 
of  the  two-dollar  bills,  amounting  to  $28,348,497,  and  of  a  large  por- 
tion of  the  five- dollar  bills,  amounting  to  $245,168,884,  or  a  total  of 
$314,477,372. 

Sec.  4.  That  said  United  States  Government  bond  notes  shall  be  a  legal-tender 
between  all  national  banks  and  be  redeemed  in  gold  coin  when  presented  for  pay- 
ment at  the  bank  of  issue;  and  that  from  the  passage  of  this  act  all  duties  on 
imports  shall  be  paid  in  gold  coin. 

These  United  States  Government  bond  notes  are  redeemable  in  gold 
coin  at  the  bank  of  issue  and  not  by  the  Government  for  the  following 
reasons : 

First.  The  Government  should  not  be  responsible  for  them  beyond 
the  proper  custody  of  the  bonds  securing  them. 

Second.  These  notes,  constituting  the  great  bulk  of  our  paper  money, 
should  be  good  enough  to  pass  for  their  face  around  the  entire  globe, 
and  this  could  only  be  possible  by  making  them  redeemable  in  gold, 
the  accepted  money  of  the  world. 

Third.  They  should  be  redeemable  only  over  the  counter  of  the  bank 
of  issue,  because  they  are  as  good  as  gold,  being  secured  by  the  gold 
obligations  of  the  Government  ;  and  the  expense  and  trouble  of  Govern- 
ment redemption  would  therefore  be  unnecessary. 

Sec.  5.  That  at  the  same  time  that  said  corporation  shall  deposit  United  States 
Government  bonds  as  aforesaid  it  shall  also  deposit  with  the  United  States  Govern- 
ment United  States  legal-tender  notes  or  gold  certificates,  or  both,  of  such  an 
amount  that  it,  together  with  the  gold  said'corporation  has  on  hand,  will  equal  15 
per  cent  of  its  deposits;  and  the  United  States  Government  shall  deliver  to  said  cor- 
poration gold  coin  in  lieu  of  said  legal-tender  notes  and  said  gold  certificates.  Said 
corporation  shall  also  deposit  at  the  same  time,  with  the  United  States,  United  States 
Treasury  notes  or  United  States  silver  certificates,  or  both,  which,  with  the  silver 
coin  then  held  by  said  corporation,  shall  amount  to  10  per  cent  of  its  deposits,  and 
the  United  States  Government  shall  deliver  to  said  corporation  in  lieu  thereof  silver 
coin  of  an  equal  amount;  and  said  legal-tender  notes,  gold  certificates,  Treasury 
notes,  and  silver  certificates  shall  bo  thereupon  canceled.  Said  corporation  shall 
thereafter  keep  as  a  reserve  25  per  cent  of  its  deposits  in  the  following  kinds  of 
money,  gold  and  silver:  At  least  60  per  cent  of  said  reserve  shall  be  in  gold  coin, 
and  the  remaining  40  per  cent  of  said  reserve  may  be  in  silver  coin  :  Provided,  how- 
ever, That  in  lieu  of  one-half  of  such  coin  reserve  deposits  in  reserve  cities  subject 
to  check  may  be  held. 

The  purpose  of  this  section  is  to  convert  all  our  paper  money  into  gold 
and  silver  reserves  of  the  banks  or  put  it  into  circulation,  so  that  here- 
after all  the  lawful  reserves  of  our  banks  shall  be  metal,  gold  and  silver. 
The  gold  certificates  and  greenbacks  are  taken  up  and  canceled,  and 
gold  paid  out  in  exchange  for  them. 

The  Treasury  notes  and  the  silver  certificates,  so  for  as  they  may 
be  required  for  the  purpose  of  bank  reserves,  are  also  to  be  redeemed 
with  the  silver  now  securing  them  and  the  notes  and  certificates  can- 
celed. 

Kow,  if  all  national  banks,  or  a  sufficient  number  of  State  banks  to 
make  the  total  capital  equal  to  the  present  capital  of  the  national 
banks,  should  organize  under  this  law  the  result  would  be  as  follows: 

First.  With  regard  to  the  gold  reserve  in  the  banks,  the  following 


16 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


tabulated  statement  will  show  the  various  financial  changes  and  the 
result : 

Capital  of  national  banks   $657, 135,  498.  65 

Deposits  of  all  reserve  cities   1,  078,  766,  776.  00 

Reserve  of  25  per  cent  held  agaiust  them   269,  691,  694.  00 

Deposits  outside  reserve  cities   910.  533,  553.  00 

Reserve  of  15  per  cent  held  against  them  *.   136,  580,  032.  00 

The  total  reserve  will  then  he   406,  271,  726.  00 

Sixty  per  cent  or  the  gold  reserve  would  he   243,  763,  035.  60 

Gold  now  held  by  national  hanks   167,  000,  000.  00 

Amount  to  he  taken  from  gold  on  hand,  or  to  be  raised  by  tax 

on  imports   76,  763,  035.  60 

Fortv  per  cent  or  the  silver  reserve   162,  508,  689.  40 

Treasury  notes   136,  000,  000.  00 

The  reserve  will  exceed  amount  of  Treasury  notes   26,  508,  689.  40 

Hence  all  Treasury  notes  will  be  canceled  in  making-  up  the  bank 
reserves. 

Amount  of  cash  in  Treasury   $260,  000,  000.  00 

Amount  of  greenbacks  in  Treasury  to  be  canceled  now   78,  000,  000.  00 

Leaving  balance  of  cash   182,  000,  000.  00 

Deduct  sufficient  balance  to  carry  on  business   30,  000,  000.  00 

And  we  have  a  net  balance  of   152,  000,  000.  00 

The  amount  of  greenbacks  not  yet  canceled   346,  000,  000.  00 

The  amount  supposed  to  be  lost  or  destroyed   $46,  000,  000.  00 

The  amount  now  in  Treasury  to  be  canceled  and 

destroyed   78,  000,  000.  00 

The  amount  of  cash  balance  to  be  applied  after  con- 
version into  gold  ihrough  the  duties  on  imports 

under  this  act,  payable  in  gold   153,  000,  000.  00 

 .   277,000,000.00 

Leaving  balance  to  be  retired  from  sale  of  bonds  or  revenue. .     69,  000,  000.  00 

This  amount  will  more  than  be  provided  for  within  the  next  year  at 
the  present  rate  of  redemption. 

Second.  With  regard  to  the  silver  reserve  of  the  national  banks — 

The  amount  required,  as  above  stated,  would  be   $162,  508,  689.  40 

There  are  in  the  United  States  Treasury,  in  round 

numbers,  Treasury  notes   $30,  000,  000.  00 

There  is  now  in  the  national  banks  silver  or  silver 

certificates   30,  000,  000.  00 

  60,  000,  000.  00 

Leaving  a  balance  of  silver  reserve  to  be  raised   102,  508,  689.  40 

But  the  amount  of  Treasury  notes  now  outstanding  is  $102,357,636? 
all  of  which  will  be  taken  up  and  canceled  to  obtain  the  above  reserve- 
In  other  words,  all  the  Treasury  notes  will  have  been  canceled  as  well  as 
the  greenbacks,  and  the  Government  will  have  no  demand  obligations 
out  but  the  silver  certificates,  which,  after  a  given  date,  are  to  be  can- 
celed as  fast  as  received  and  the  silver  coin  securing  them  issued  in 
their  stead.  Thus  the  Government  will  have  gone  out  of  the  banking 
business,  all  its  demand  obligations  having  been  converted  into  coin 
reserves  of  the  banks,  or  put  into  circulation  among  the  people,  and  its 
guarantee  taken  from  the  bank  notes. 

Sec.  6.  That  any  corporation  organized  under  this  act  may,  with  the  permission  and 
under  the  supervision  and  control  of  the  Board  of  Finance,  issue  its  own  circulation, 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY.  17 


which  sllall  be  furnished  by  the  United  States  Government  and  be  known  as  United 
States  national-bank  notes.  Said  United  States  national-bank  note  t shall  be  issued 
in  denominations  of  $5  and  multiples  thereof,  and  may  be  issued  on  y  in  the  follow- 
ing manner  and  upon  the  following  conditions: 

First.  Every  bank  issuing  United  States  national-bank  notes  shall  at  all  times 
maintain  against  the  amount  of  such  notes  outstanding  a  reserve  corresponding  to 
that  required  against  its  deposits. 

Second.  Any  bank  that  has  complied  with  the  law  may,  with  the  consent  and  under 
the  control  of  the  Board  of  Finance,  issue  an  amount  of  United  States  national-bank 
notes  equal  to  20  per  cent,  or  one-fifth,  of  its  paid  up  and  unimpaired  capital,  and 
shall  pay  upon  such  an  amount  thereof,  as  may  be  at  any  time  outstanding,  a  tax  at 
the  rate  of  one-half  of  1  per  cent  per  annum. 

Third.  Said  bank  may  issue  a  second  amount  of  notes  equal  to  20  per  cent,  or  one- 
fifth  of  its  paid-up  and  unimpaired  capital,  and  shall  pay  upon  such  an  amount 
thereof  as  may  be  at  any  time  outstanding  a  tax  at  the  rate  of  1  per  cent  per  annum. 

Fourth.  Said  bank  may  issue  a  third  amount  of  notes  equal  to  20  per  cent,  or  one- 
fifth  of  its  paid-up  and  unimpaired  capital,  and  shall  pay  upon  such  an  amount 
thereof  as  may  be  at  any  time  outstanding  a  tax  at  the  rate  of  2  per  cent  per  annum. 

Fifth.  Said  bank  may  issue  a  fourth  amount  of  notes  equal  to  20  per  cent,  or  one- 
fifth  of  its  paid-up  and  unimpaired  capital,  and  shall  pay  upon  such  an  amount 
thereof  as  may  be  at  any  time  outstanding  a  tax  at  the  rate  of  4  per  cent  per  annum. 

Sixth.  Said"  bank  may  issue  a  fifth  amount  of  notes  equal  to  20  per  cent,  or  one- 
fifth  of  its  paid-up  and  unimpaired  capital,  and  shall  pay  upon  such  an  amount 
thereof  as  may  be  at  any  time  outstanding  a  tax  at  the  rate  of  6  per  cent  per  annum. 

So  much  detailed  information  lias  already  been  adduced  showing,  in 
the  cases  of  Germany,  France,  England,  Ireland,  Scotland,  and 
Canada,  that  such  a  currency  has  always  proved  a  safeguard  against 
panics  and  money  famines,  and  that  it  has  invariably  proved  safe,  that 
I  shall  only  speak  here  of  its  adaptation  to  our  condition  and  needs, 
and  the  advantages  that  must  grow  out  of  its  adoption  by  us. 

first.  As  to  our  condition  and  needs,  it  is  to  be  observed  that  a 
comparison  of  our  domain,  commerce,  and  population  with  those  of  the 
countries  mentioned  clearly  establishes  the  fact  that,  if  an  elastic  cur- 
rency has  proved  of  an  inestimable  advantage  to  them,  it  would  be  of 
a  still  greater  benefit  to  us.  For, *o wing  to  our  immense  products  at 
great  distances  from  our  financial  centers,  it  becomes  absolutely  neces- 
sary that  the  local  banks  provide  money  by  expressing  bills  of  lading 
and  the  notes  of  our  merchants  and  farmers  to  the  great  commercial 
centers  and  borrowing  money  upon  them,  ship  it  out  to  the  various  sec- 
tions thousands  of  miles  away,  and  when  our  crops  and  products  are 
marketed,  ship  the  money  back  to  the  far-off  centers  and  express  the 
notes  and  other  collateral  home  again.  What  we  do  in  this  line  of 
business  is  without  a  parallel  anywhere  in  the  civilized  world. 

Lingering  prejudice  may  breed  pernicious  suspicions,  but  experience, 
common  sense,  and  reason  plainly  point  the  way. 

Second.  What  advantages  will  necessarily  follow  the  adoption  of 
this  system  in  this  country  may  be  more  clearly  seen  by  some  concrete 
illustration.  Choose,  if  you  will,  the  city  of  New  Orleans,  the  cotton 
center  of  the  South;  or  Kansas  City,  handling  the  varied  crops  of  the 
central  West;  or  Fargo,  lying  in  the  lap  of  our  greatest  wheat  region 
in  the  central  North;  or  Seattle,  struggling  with  the  diversed  products 
of  the  great  Northwest ;  or  Los  Angeles,  unable  to  handle  the  golden 
fruits  of  southern  California  for  the  want  of  an  adequate  currency; 
and  what  is  true  of  these  greater  centers  is  equally  true  of  every  com- 
munity having  banking  facilities  throughout  the  entire  length  and 
breadth  of  our  country.  Certainly  it  will  not  be  denied  that  the  notes 
and  bills  of  lading  in  the  banks  of  New  Orleans,  or  any  other  city,  are 
just  as  good  security  there  for  the  redemption  of  any  notes  the  banks 
themselves  may  issue  as  they  are  tied  up  in  bundles  and  held  in  New 
York  City  for  the  security  of  the  currency  that  may  be  shipped  South. 
fin  2 


18 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


The  amount  of  money  used  in  either  case  would  be  the  same;  the 
amount  of  security  the  same. 

Then,  what  is  the  difference  !  Let  us  see.  A  New  Orleans  bank  which 
has  a  capital  of  $200,000  ties  up  in  a  bundle  $125,000,  or  perhaps 
8150,000,  of  its  best  notes  and  ships  them  to  its  New  York  correspondent, 
and  borrows,  if  perchance  there  is  no  panic  on,  $100,000  of  money, 
paying  on  an  average  about  G  per  cent  per  annum  for  it,  and  loans  it 
out  to  move  the  cotton  crop  in  its  section.  As  it  must  pay  the  express 
two  ways  on  the  $150,000  of  discounts  or  notes  and  the  express  two 
ways  on  the  $100,000  borrowed,  the  producers  of  the  South  must  pay 
anywhere  from  8  to  10  per  cent  for  the  money,  and  should  do  so  con- 
sidering the  risks  and  what  it  costs  the  bank,  for  we  must  remember 
that  the  banking  business  pays  no  great  return  upon  the  capital  engaged 
in  it.  The  report  of  the  Comptroller  of  the  Currency  shows  that  the 
average  earnings  of  all  the  national  banks  of  the  United  States  was 
only 5.21  percent  for  the  year  ending  September  1, 1895,  which  is  a  low 
rate  considering  the  risks  involved. 

Some  of  our  people  seem  to  think  that  national  banks  are  favored 
institutions.  That  this  is  a  mistaken  idea  and  that  its  advantages,  if 
any,  are  open  to  all  of  our  people  alike,  let  me  call  your  attention  to 
the  following  facts: 

First.  If  the  national  banks  are  specially  favored,  why  do  not  the 
several  thousand  trust  companies,  State  banks,  and  private  banking 
firms  organize  at  once  under  that  law? 

Second.  No  one  who  is  a  conservative  adviser  ever  suggests  national- 
bank  stock  to  the  widow  or  aged,  or  those  with  limited  means,  because 
the  risk  in  holding  it  is  so  great. 

Third.  The  shares  are  only  $100  each,  so  that  any  frugal  person  may 
invest  in  the  stock  of  a  national  bank  if  he  desires  to  do  so. 

Fourth.  Wo  must  not  forget  that  if  banking  under  a  national-bank 
charter  was  so  much  more  profitable  than  any  other  business,  men  of 
means  stand  ready  at  all  times  to  engage  in  it,  bringing  the  profits 
down  to  or  below  the  level  of  all  other  investments. 

This  suspicion  or  misapprehension  that  the  Government  is  extending 
through  the  national  banks  to  someone  something  that  everybody  else 
can  not  get  has  given  birth  to  a  kind  of  prejudice — the  child  of  igno- 
rance— excited  an  unwarranted  jealousy,  and  developed  a  groundless 
opposition  in  some  localities  to  a  system  that  has  raised  the  standard 
of  banking  in  this  country  and  provided  the  American  people  with  a 
currency  as  sound  as  any  in  the  world,  and  calling  for  the  admiration 
of  all  civilized  nations. 

Now,  recurring  to  the  special  matter  in  hand,  let  us  suppose  that 
this  same  New  Orleans  bank,  with  its  $200,000  capital,  was  organized 
under  this  bill.  What  could  it  have  done  under  the  section  now  being- 
discussed? 

The  bank  need  not  tie  up  and  ship  away  $150,000  of  its  best  securi- 
ties, but  keeping  them  in  its  own  safe  issue  $100,000  of  its  own  notes 
as  follows: 

First.  It  would  issue  the  money  just  as  it  needed  it  and  no  faster, 
and  therefore  no  part  of  it  would  ever  be  idle  and  a  source  of  expense. 

December  1,  1895,  issued  20  per  cent,  or  one-fifth  of  capital,  $200,000  (tax  one- 
half  of  1  per  cent)   $40,  000 

December  15,  1895,  issued  20  per  cent,  or  one-fifth  of  capital,  $200,000  (tax 

1  per  cent)   40,000 

January  1, 1896,  issued  only  10  per  cent,  or  one-tenth  of  capital,  $200,000  (tax 

2  per  cent)..!  ......  !   20,000 


100,  000 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


19 


Certainly  long  before  the  1st  day  of  July,  1S9G,  the  crops  will  have 
been  disposed  of  and  these  notes  retired,  the  money  having-  cost  the 
bank  one-fourth  of  1  per  cent  for  the  first  840,000;  one-half  of  1  per 
cent  for  the  second  $40,000,  and  1  per  cent  for  the  $20,000;  or  an 
average  cost  to  the  banker  of  one-half  of  1  per  cent  for  the  six  months 
the  money  was  out. 

$40,000  for  six  months  at  one-fourth  of  1  per  cent   $100 

$40,000  for  six  months  at  one-half  of  1  per  cent   200 

$20,000  for  six  months  at  1  per  cent   200 

Making  a  total  of   500 


Or  one-half  of  1  per  cent  on  $100,000  for  six  months  against  3A  per 
cent,  at  least,  in  the  former  instance  for  the  same  length  of  time. 

Will  it  be  necessary  to  state  that  this  difference  of  3  per  cent  in  the 
two  instances  will,  every  penny  of  it,  amounting  to  $3,000,  come  out 
of  the  merchants,  farmers,  or  producers,  and  practically  all  of  it  out  of 
the  farmers  or  producers? 

Will  anyone  seriously  urge  that  any  portion  of  this  heavy  charge 
will  be  borne  by  the  bankers  ?  Xor  will  anyone  at  all  familiar  with  the 
laws  of  trade  doubt  that  the  people,  farmers  and  producers,  will  ulti- 
mately get  every  farthing  of  the  advantage  gained,  for  competition 
would  very  soon  bring  the  bankers'  share  of  profit  to  a  fixed  limit,  not 
varying  much  from  its  present  margin,  thus  saving  to  the  people,  the 
producers  of  our  country — farmers  and  laborers — anywhere  from  1  to 
5  per  cent  per  annum  upon  the  eaiutal  borrowed  to  carry  on  the  com- 
merce of  the  country. 

The  value  of  our  finished  product,  it  will  be  remembered,  now  annually 
exceeds  $12,000,000,000. 

Mr.  Edward  Atkinson,  the  statistician,  has  estimated  that  the  trans- 
formation from  the  unmined  coal  and  iron,  the  unbroken  forest  and  the 
fallow  fields  to  the  homes  in  which  we  live,  the  things  we  wear  and 
those  we  eat,  there  are  at  least  three  transfers  of  this  vast  property, 
or  $36,000,000,000  passing  from  man  to  man.  Is  it  not  reasonable  to 
suppose  that  at  least  two-thirds  of  this  amount  is  handled  with  bor- 
rowed capital  ?  If  so,  even  if  the  loans  run  but  sixty  days  and  1  per 
cent  can  be  saved  on  this  two-thirds,  or  $24,000,000,000,  the  people — 
the  producers — will  be  the  gainers  by  $240,000,000  every  year,  or  more 
than  all  the  greenbacks  now  outside  the  United  States  Treasury.  Shall 
we  not  cancel  them  if  we  can  more  than  make  up  for  them  in  every 
succeeding  year,  to  say  nothing  of  the  frightful  loss  they  are  entailing 
upon  the  country  every  month,  and  the  danger  to  which  the  Govern- 
ment is  subjected  because  of  them? 

Let  the  reader  estimate  what  the  gain  to  the  producers  would  be  if 
the  loaus  on  this  $24,000,000,000  ran  six  months !  What  if  they  ran  for 
each  current  month  in  the  year,  just  three  and  six  times,  respectively, 
the  amount  saved  every  sixty  days. 

Is  it  not  a  mere  fetich  to  hang  on  to  them,  deceived  by  the  hallucina- 
tion that  the  Government  can  make  something  out  of  nothing,  when  it 
has  been  proved  in  this  case,  as  in  all  others,  that  mistakes  and  false- 
hoods only  lead  to  misfortune  and  disaster?  If  the  experience  of  all 
other  great  commercial  nations  added  to  this  fatal  delusion  is  not  con- 
vincing enough  to  determine  our  action  now,  we  shall  simply  have  to 
wait  to  be  taught  by  more  bitter  lessons  still,  and  more  crushing  dis- 
asters, what  has  already  been  demonstrated  beyond  the  shadow  of  a 
doubt. 


20 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


Under  the  operation  of  this  provision  of  the  bill  there  is  still  another 
object  to  be  attained  that  is  founded  in  justice  and  conserves  the  wel- 
fare of  the  people  in  all  portions  of  our  country  alike.  It  is  the  equal- 
ization of  the  rates  of  interest  in  every  section  of  the  land,  from  Niagara 
Falls  to  the  Gulf,  from  Cape  Cod  to  the  Golden  Gate.  Wherever  there 
is  banking  capital,  a  demand  for  money,  and  an  equally  abundant  sup- 
ply of  equally  good  commercial  two  name,  thirty,  sixty,  and  ninety  day 
paper,  there  the  rates  should  and  will  be  practically  the  same. 

Kates  of  interest  will  not  then  be,  as  now,  particularly  low  in  one 
locality,  because  there  is  considerable  wealth  in  the  form  of  money  and 
securities  and  particularly  high  in  another,  notwithstanding  there  is 
abundant  wealth  in  the  form  of  cotton,  corn,  cattle,  wheat,  and  the 
various  other  products  of  the  earth  simply  because  it  awaits  a  better  day 
for  disposition  or  sale.  The  question  will  not  then  be  so  much  whether 
it  is  stocks  and  bonds  on  the  one  hand  and  cotton  and  corn  on  the  other 
as  whether  it  is  good  liquid  wealth  in  some  form,  cattle,  hogs,  corn,  cot- 
ton, and  wheat  being  regarded  as  good  wealth,  as  quick  assets  if  only 
the  banks  have  the  facilities  for  carrying  them. 

It  will  be  observed  that  the  tax  imposed  upon  the  circulation  is  an 
increasing  graduation.  The  object  is  to  give  it  a  repressive  effect  just 
in  proportion  as  the  expansion  increases  under  the  varying  pressure 
from  the  crop  movement  to  the  demands  of  an  acute  and  general  panic. 

The  same  principle  is  illustrated  in  the  5  per  cent  tax  imposed  upon 
the  credit  circulation  of  the  German  banks  whenever  it  passes  a  cer- 
tain limit. 

It  is  also  illustrated  in  the  operations  of  the  clearing  houses  of  New 
York,  where  they  cbarge  G  per  cent  upon  clearing-house  certificates,  and 
in  Boston,  where  they  charge  7  per  cent  upon  them,  confident  in  all  these 
instances  that  the  tax  will  compel  the  retirement  of  the  issues.  So  far 
this  system  has  worked  perfectly,  the  retirement  of  the  circulation  fol- 
lowing quickly  upon  the  disappearance  of  the  cause. 

Sec.  7.  That  all  taxes  so  paid  to  the  Government  upon  said  United  States  national- 
bank  notes  shall  be  set  aside  and  held  by  the  Government  as  a  guarantee  fund 
exclusively  for  the  redemption  :  First,  of  the  United  States  Government  bond  notes ; 
second,  for  the  United  States  national-bank  notes,  in  the  event  of  the  liquidation 
of  any  bank  organized  under  this  law :  Provided,  however,  That  whenever  said  " guar- 
antee fund"  shall  exceed  5  per  cent  of  both  the  United  States  Government  bond 
notes  and  the  United  States  national-bank  notes,  such  excess  shall  belong  to  the 
United  States  Government  and  may  be  used  by  it  to  defray  its  general  expenses. 

It  is  to  be  observed  in  this  connection  that  if  there  had  been  no  United 
States  bonds  deposited  to  secure  national-banknotes  from  1864  down  to 
1891,  the  loss  to  note  holders  could  not  have  exceeded  $1,139,253,  and  of 
this  amount  $958,247  were  still  unclosed  accounts  at  the  time  of  the  state- 
ment. I  am  informed  by  Hon.  James  H.  Eckels,  Comptroller  of  the 
Currency,  that  a  guarantee  fund  of  one- quarter  of  1  per  cent  per  annum 
during  the  past  thirty  years  would  have  protected  all  note  holders. 
Certainly  5  per  cent  will  cover  the  remotest  possibility  of  loss,  and  then 
the  income  will  be  covered  into  the  Treasury  for  general  expenses  until 
the  fund  is  reduced  below  5  per  cent,  when  the  tax  will  again  be  turned 
to  the  guarantee  fund  account,  bringing  it  up  to  the  required  amount. 
I  think  no  one  will  doubt  that  the  provisions  of  this  bill  will  produce 
more  than  enough  to  cover  the  one-quarter  of  1  per  cent  that  the  experi- 
ence of  our  national  banks  for  thirty  years  has  shown  to  be  sufficient 
for  all  losses  even  if  there  had  not  been  on*  dollar  of  security  deposited 
to  protect  them. 

Sec.  8.  That  the  Board  of  Finance  shall  divide  the  United  States  into  clearing- 
house or  reserve-city  districts,  and  each  corporation  shall  belong  distinctly  to  some 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY 

4 


2L 


one  district,  and  the  number  of  such  district  shall  he  plainly  and  prominently  printed 
upon  the  said  United  States  national-bank  notes  issued  by  the  banks  located  therein. 
The  several  banks  of  each  district  upon  receiving  United  States  national-bank 
notes  belonging  to  any  other  district  shall  forward  the  same  to  a  reserve  city,  which 
shall  return  them  to  the  district  to  which  they  belong. 

The  object  of  the  foregoing  section  is  to  insure  the  constant  redemp- 
tion of  the  United  States  national-bank  notes,  to  materially  strengthen 
our  banking  system,  and  becomes  essential  for  the  following  reasons: 

First.  Our  individual  banking  system  does  not  in  itself  give  us  the 
same  facilities  for  forcing  current  redemption  that  large  banks  with, 
branches  in  all  parts  of  the  country  would. 

Second.  This  system  of  districts  will  draw  the  normal  money — gold, 
silver,  and  United  States  Government  bond  notes — to  the  redemption  or 
clearing-house  centers  and  keep  it  better  distributed  throughout  the 
year. 

Third.  The  tendency  will  be  to  keep  the  credit  money  at  home,  so 
that  il:  can  be  retired  whenever  the  bank  issuing  it  desires  to  do  so,  and 
thereby  save  the  tax  when  there  is  no  further  use  of  the  money  in 
circulation. 

Fourth.  This  system  will  enable  every  district  of  the  United  States 
to  furnish  whatever  credit  money  it  needs  by  sending  all  credit  notes 
from  other  districts  home  and  putting  out  its  own,  and  thereby  save  all 
the  profit  on  circulation  in  each  district  to  the  district  itself. 

Fifth.  But  the  most  important  and  far-reaching  effect  of  this  provi- 
sion is  the  advantage  and  protection  it  gives  to  every  bank  belonging 
to  a  clearing-house  district. 

It  is  important  to  observe  and  remember  that  every  bank  belonging 
to  a  clearing-house  district  is  individually  as  strong  as  the  combined 
capital  of  all  the  banks  included  in  the  district;  and  it  is  not  at  all 
likelv  that  there  would  be  a  clearing-house  district  with  a  capital  less 
than"  825,000,000,  and  probably  none  less  than  850,000,000,  while  the 
large  cities  would  be  many  times  stronger  than  that,  even. 

This  plan  would  give  us  all  the  power  of  the  most  perfect  centralized 
system  of  banking  in  the  world,  with  all  the  advantages  of  individual 
banking  institutions.  In  fact,  I  am  of  the  opinion  that  in  power  and 
facility  it  would  surpass  any  system  now  in  operation.  While  it  would 
be  perfectly  independent  in  its  parts  and  responsive  to  the  demands  of 
every  locality,  it  would  be  free  from  the  caprice  and  discrimination 
of  a  management  hundreds  and,  perhaps,  thousands  of  miles  away. 

Sixth.  It'  the  Scotch  banks  maintain  gold  payments  by  keeping  only 
5  or  G  per  cent  gold  reserve,  can  anyone  doubt  for  a  moment  that  these 
clearing  house  districts  and  every  bank  in  them  would  have  any  dif- 
ficulty in  maintaining  gold  payments  with  a  gold  reserve  of  15  per 
cent?  There  can  be  no  question  about  it,  for  everyone  all  over  the 
United  States  would  then  feel  about  every  bank  under  this  system  as 
the  people  now  do  about  any  of  the  banks  in  the  Xew  York  or  Boston 
clearing  houses,  viz,  that  they  can  not  fail.  Therefore  there  will  be  no 
such  strain  brought  against  the  reserves  as  might  otherwise  happen. 
The  combined  wealth  of  all  the  banks  in  any  district  is  an  absolute 
guaranty7  of  every  honestly  managed  institution  within  that  district. 

It  will  be  admitted,  I  think,  that  any  bank  belonging  to  a  clearing- 
house district  will  exercise  greater  caution  in  loaning  its  funds,  or  in 
issuing  its  notes,  than  it  would  were  it  not  a  member  of  some  district, 
for  it  must  realize  that  it  is  in  a  measure  under  the  surveillance  of  the 
associated  banks  and  can  not  afford  to  fall  under  any  suspicion  on 
account  of  poor  management;  hence  the  moral  effect  must  necessarily 


22 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


be  to  improve  the  character  of  all  our  banking,  a  matter  that  is  always 
of  the  very  greatest  importance  to  the  commercial  world. 

Having  discussed  somewhat  in  detail  all  those  sections  of  the  bill 
that  pertain  to  the  organization  and  operation  of  the  banks  under  its 
provisions,  it  becomes  pertinent  to  inquire  what  the  inducements  are 
for  a  bank  to  organize  under  this  act. 

First.  It  will  do  so  because  of  the  protection  and  moral  support  of  a 
clearing-house  district,  which  can  only  be  appreciated  by  institutions 
which  have  participated  in  its  benefits  in  most  trying  times. 

Second.  The  power  to  issue  its  circulation  without  delay  or  trouble  to 
the  extent  needed,  and  at  a  cost  of  only  1  or  2  per  cent,  in  normal  times 
when  otherwise  the  money  would  cost  from  6  to  8  per  cent  and  be  accom- 
panied by  very  great  inconvenience  and  often  much  annoyance. 

Third.  That  while  the  peojde  will  save  about  one-half  their  present 
interest  on  the  national  debt,  or  more  than  $15,000,000  per  annum,  the 
banks  will  gain  in  freedom  from  various  burdens  now  imposed  amount- 
ing to  more  than  1  per  cent.  This  reduction  will  especially  benefit  the 
masses,  the  farmers,  and  the  producers  in  every  department  of  labor. 

Indeed,  the  sooner  the  American  people  learn  to  transfer  all  taxes 
from  money  engaged  in  banking  to  other  forms  of  wealth  which  they 
can  not  use,  the  cheaper  will  they  make  the  tools  with  which  commerce 
is  carried  on  and  the  shops  kept  in  motion.  The  earning  capacity  of 
labor  will  be  just  that  much  greater,  for  in  the  last  analysis  money  is 
the  real  tool  that  fells  the  trees  out  of  which  we  build  our  houses  and 
make  our  furniture,  mines  the  coal,  digs  the  ore,  spins  the  wool,  weaves 
the  cotton,  makes  our  garments,  and  prepares  our  food,  and  should  be 
made  as  cheap  as  possible,  so  that  labor  can  continue  to  get  a  greater 
and  greater  share  of  its  profits  until  a  perfect  adjustment  of  labor  and 
capital  is  reached. 

Sec.  9.  That  the  United  States  national- bank  notes  shall  he  a  legal  tender  at  par 
between  all  national  banks,  and  the  same  shall  be  redeemed  upon  presentation  at 
the  bank  of  issue  in  gold,  silver,  or  United  States  Government  bond  notes:  Provided, 
however,  That  no  more  than  40  per  cent  thereof  shall  be  receivable  in  silver  coin. 

The  first  proposition  of  this  section  is  the  same  as  that  now  on  the 
statute  books  with  regard  to  our  present  bank  notes. 

The  object  of  making  these  United  States  national-bank  notes  redeem- 
able in  the  United  States  Government  bond  notes,  as  well  as  gold  and 
silver,  is  to  protect  the  metal  reserve  of  the  bank;  and  yet,  since  the 
United  States  Government  bond  notes  are  themselves  redeemable  in 
gold  at  the  bank  of  issue,  it  amounts  to  a  metal  redemption. 

The  limitation  placed  upon  the  amount  of  silver  anyone  presenting 
notes  for  redemption  must  take,  is  to  equalize  its  distribution  and  insure 
a  predominance  of  gold  everywhere,  as  the  gold  must  carry  a  margin 
of  credit  in  the  silver. 

Sec.  10.  That  banks  may  be  organized  under  this  act  with  a  capital  of  $20,000  or 
any  greater  amount  in  multiples  of  $10,000;  but  no  bank  shall  be  organized  in  any 
reserve  city  with  a  less  capital  than  $100,000. 

There  are  many  localities  needing  the  accommodation  and  advantages 
of  a  bank  and  where  a  bank  of  less  capital  than  $50,000  might  do  well; 
but  there  is  not  sufficient  business  for  a  bank  with  $50,000  capital,  the 
present  minimum  limit. 

Individual  banks  are  recommended  instead  of  branches,  since  our 
whole  system  is  an  individual  and  not  a  centralized  one. 

Sec.  11.  That  all  banks  organized  and  doing  business  under  this  act  outside  of 
the  reserve  cities  shall  keep  as  a  reserve  15  per  cent  of  its  deposits,  and  60  per  cent 
of  said  reserve  shall  be  in  gold  coin,  and  40  per  cent  may  be  in  silver  coin :  Provided, 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


23 


however,  That  in  lieu  of  one-half  of  such  coin  reserve,  deposits  in  reserve  cities  sub- 
ject to  check  may  he  held. 

The  amount  of  the  reserve  here  required  is  the  same  as  tha*"  now 
provided  for  in  the  case  of  banks  outside  of  clearing-house  cities,  and 
there  is  no  substantial  difference  in  the  amount  of  cash  balances  that 
may  be  held  in  reserve  cities. 

Sec.  12.  That  each  hank  organized  under  this  act  and  doing  business  outside  of  a 
clearing-house  city  shall  select  some  national  bank  in  the  clearing-bouse  city  of  its 
own  district  through  which  it  shall  redeem  its  United  States  national-bank  notes  in 
gold,  silver,  or  United  States  Government-bond  notes. 

This  section  is  to  facilitate  current  redemption  and  render  it  certain 
that  any  bank  will  be  able  to  obtain  possession  of  its  notes  whenever 
it  wishes  to  retire  them  or  assist  a  holder  who  wishes  to  present  thein 
for  redemption. 

Sec.  13.  That  the  United  States  Government  shall  not  pay  out  or  reissue  any 
United  States  legal-tender  notes  from  and  after  the  1st  day  of  Jan'uary,  1897,  but 
the  same,  when  received,  shall  be  canceled  and  destroyed;  and  further,  that  the 
United  States  Government  shall  not  pay  out  or  reissue  any  United  States  Treasury 
notes  or  silver  certificates  from  and  after  the  1st  day  of  July,  1897,  but  the  same 
shall  be  canceled  and  destroyed;  and  the  United  States  may  put  out  an  amount  of 
silver  coin  equal  to  the  Treasury  notes  and  silver  certificates  so  destroyed. 

•  This  section  provides  for  the  final  step  in  the'retireinent  of  all  the 
paper  money  outstanding-,  and  the  dates  are  postponed  in  order  that 
a  practical  adjustment  shall  have  taken  place  before  canceling  the 
remaining  legal-tender  notes,  Treasury  notes,  and  silver  certificates 
not  required  in  providing  for  the  bank  reserves. 

Sec.  14.  That  in  the  event  of  the  liquidation  of  any  national  bank  organized  under 
this  act,  the  United  States  Government  shall  undertake  as  trustee,  but  shall  not  be 
responsible  for  the  redemption  of  the  outstanding  notes ;  and  the  assets  of  said  bank, 
including  the  assessment  upon  the  shareholders,  shall  be  distributed  in  the  following 
order : 

First.  Sufficient  gold  coin,  or  its  equivalent,  shall  be  set  aside  and  held  by  the 
Government  for  the  redemption  of  the  United  States  Government  bond  notes. 

Second.  Sufficient  gold,  silver,  and  United  States  Government  bond  notes  shall  be 
set  aside  and  held  by  the  Government  for  the  redemption  of  the  United  States 
national-bank  notes,  with  interest  thereon  at  the  rate  of  6  per  cent  per  annum  from 
the  date  of  suspension  to  the  date  fixed  for  the  redemption  thereof. 

Third.  That  out  of  the  proceeds  of  the  United  States  Government  bonds  deposited 
with  it,  and  the  guarantee  fund  credited  as  aforesaid,  the  United  States  Government 
shall  redeem,  upon  presentation,  any  of  said  United  States  Government  bond  notes, 
or  said  United  States  national-bank  notes,  reimbursing  itself  out  of  said  assets. 

Fourth.  The  assets  remaining  shall  be  distributed  among  the  depositors  and  all 
others  having  claims  in  the  same  manner  as  now  provided  by  law. 

Sec.  15.  That  all  acts  or  parts  of  acts  inconsistent  with  the  foregoing  shall  be, 
and  the  same  are  hereby,  repealed. 

That  the  United  States  Government  should  not  become  responsible 
in  any  way  for  the  obligations  of  the  several  banks  there  can  be  no 
possible  doubt.  However,  as  the  interests  of  our  country  demand 
uniformity  in  our  banking  system,  it  is  highly  important  that  the  Gov- 
ernment should  maintain  supervision  over  them  and  administer  the 
assets  in  the  event  of  failure,  thus  giving  assurance  to  note  holders 
and  depositors  alike. 

That  the  note  holders  should  have  a  prior  lien  upon  the  assets  of  the 
bank  in  accordance  with  our  present  law  is  essential,  as  the  notes  leave 
the  immediate  neighborhood  of  the  bank  issuing  them.  The  fact  of  their 
being  a  prior  lien  upon  the  assets  of  the  bank  justifies  their  passing  cur- 
rent, because  the  people  know  they  are  safe  by  experience.  Again,  the 
note  holder  seldom  knows  the  officers  of  a  bank  as  the  depositor  does 
who  keeps  his  account  with  some  particular  bank  becauseof  his  acquaint- 
ance with  the  management.    Then  the  depositors  of  banks  are  almost 


24 


OUR   FJXANXIAL  DIFFICULTY  AND  THE  REMEDY. 


in  variably  the  borrowers  of  tlie  bank  and  the  very  persons  who  first  get 
the  notes.  It  is  therefore  of  the  highest  importance  that  the  notes  be 
as  good  as  possible  in  order  that  one  may  borrow  money  at  the  lowest 
rate  of  interest  possible,  and  the  notes  remain  out  until  he  is  ready  to 
pay  off  his  loan,  for  the  better  the  notes  the  longer  will  they  remain  out 
and  circulate;  indeed,  if  they  remain  unquestioned  the  tendency  would 
be  to  continue  to  circulate  until  called  in  by  the  bank  issuing  them. 

It  may  be  suggested  by  some  that  the  notes  should  not  be  a  prior 
lien  upon  the  assets  of  the  bank,  because  that  gives  to  the  note  holder 
an  advantage  over  the  depositor;  but  the  reasons  already  given  justify 
the  principle.  However,  there  is  still  another  reason  that  forecloses  all 
discussion  upon  the  question  as  a  matter  of  actual  practice,  and  that  is 
this:  It  will  be  admitted  that  a  bank  will  not  issue  any  of  its  bank 
notes  unless  its  customers  need  the  money.  Ndw,  it  is  certain  that  if  a 
bank  can  not  issue  its  notes  it  will  bundle  up  a  good  margin  of  securi- 
ties and  send  them  to  its  correspondent  in  some  distant  city  and  get 
the  necessary  amount  of  currency,  giving  the  correspondent  bank  a 
first  lien  upon  all  the  securities  turned  over;  so  it  will  make  no  differ- 
ence in  the  last  analysis  whether  it  issues  its  notes  or  borrows  the 
money.  The  currency  used  will  be  a  first  lien  upon  a  sufficient  amount 
of  the  bank's  assets  to  insure  its  redemption.  The  position  of  the 
depositor  is  the  same  in  both  cases.  The  criticism  arises  from  a  mere 
sentiment,  and  will  always  be  without  any  foundation  in  practice.  But, 
as  a  matter  of  advantage  to  the  borrowers  of  a  bank,  who  are  almost 
invariably  the  depositors,  in  commercial  banks  at  least,  and  as  a  mat- 
ter of  justice,  considering  the  difference  in  the  relation  of  the  note 
holder  and  depositor  to  the  bank,  the  note  should  be  a  prior  lien  upon 
the  assets. 

Now,  I  will  reply  to  the  gentleman  who  inquired  how  the  banks  are  to 
maintain  gold  payments  when  the  Government  finds  such  difficulty  in 
doing  so. 

The  difficulty  of  the  Government  arises  in  two  ways: 

First.  It  has  strained  its  credit  and  aroused  doubts  about  its  ability  to 

redeem  its  demand  obligations  in  gold,  thereby  creating  a  great  demand 

for  gold. 

Second.  It  can  only  get  the  gold  from  the  sale  of  bonds  which  are  to 
be  paid  off  by  taxing  the  people.  It  has  no  inflowing  stream  of  wealth 
measured  in  gold,  hence  our  Government  difficulties  and  dangers. 

The  banks  in  Scotland,  Ireland,  England,  Germany,  and  Canada  have 
no  difficulty  in  maintaining  gold  payments,  although  their  reserve  in 
gold  is  much  less  than  that  provided  for  in  our  reserves.  Now,  why  is 
this  ?  Just  because  every  note,  draft,  or  bill  of  exchange  signed  by  two 
or  more  makers  or  indorsers  are  payable  in  gold  or  its  equivalent  on 
demand,  or  in  thirty,  sixty,  or  ninety  days,  giving  everybody  absolute 
confidence,  and  no  one  ever  asks  for  gold  unless  it  is  needed  for  some 
special  purpose. 

How  would  it  be  with  our  banks  f  Let  us  suppose  that  banks  having 
capital  equal  to  the  capital  of  our  national  banks  were  organized  under 
this  law,  and  the  act  were  in  force.  What  would  the  condition  be; 
what  the  result?  There  would  be  about  8600,000,000  of  free  gold, 
$000,000,000  of  free  silver,  and  $057,000,000  of  United  States  Govern- 
ment bond  notes  in  circulation  in  this  country. 

The  gold  and  silver  would  certainly  take  care  of  themselves,  as  they 
are  both  legal  tender  and  perform  redemption  work. 

The  SG57,000,000  United  States  Government  bond  notes,  being 
secured  by  United  States  Government  bonds,  themselves  payable  in 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY.  25 

gold,  would  never  be  presented  for  redemption  unless  the  holder  had 
some  special  use  for  gold,  such  as  shipment  abroad. 

To  put  the  strongest  possible  case  against  the  banks,  let  us  suppose 
that  they  have  issued  the  maximum  amount  of  United  States  natioual- 
bank  notes  also,  viz,  8057,000.000,  an  amount  equal  to  the  capital,  in 
addition  to  the  United  States  Government  bond  notes  outstanding, 
would  the  credit  of  the  banks  be  strained  ?    Let  us  see. 

First.  Let  us  remember  that  every  bank  is  a  member  of  a  clearing 
house,  and  therefore,  as  long  as  it  remains  in  good  standing,  as  strong 
as  all  the  banks  of  the  clearing-house  district  combined. 

Second.  Let  us  remember  that  on  September  28,  1895,  the  capital  of 
all  the  national  banks  amounted  to  6657,135,498.65. 

For  the  purpose  of  a  test  case,  let  us  suppose  that  every  national 
bank  issued  every  dollar  of  secured  and  credit  money  this  law  would 
allow — 


First.  United  States  Government  bond  notes   $657,  135,498.65 

Second.  United  States  national-bank  notes   657,  135,  498.  65 


The  total  paper  circulation  would  be   1,  314.  270.  997.  30 


Which  would  be  a  first  lien  upon  the  entire  assets  the  banks  would 

then  have,  or   4,  562,  074,  349.  76 

As  the  total  assets  of  the  banks  on  September  28,  1895,  were   3,  423,  629,  343.  63 


They  would  be  increased  by  the  amount  of  the  proceeds  of 

the  bond  notes  and  bank  notes  issued  by  all  the  banks,  viz .   1,  138,  445,  006. 13 

Let  it  be  here  noted  that  these  banks  would  have,  approximately,  the 
following  among  their  assets: 


First.  United  States  Government  bonds   $689.  992,  272.  48 


Second.  Gold  or  balances  in  reserve — 

Reserve  against  deposits   243.  763.  035.  60 

Reserve  against  bank  notes . .       78.  856,  259. 83 


Cities   322,  629.  2°5.  43 


Third.  Silver  or  balances  in  reserve — 

Reserve  against  deposits   162.  508.  689.  40 

Reserve  against  bank  notes . .       52,  570,  839.  89 


Cities   215.079.529.29 

Fourth.  Stocks,  securities,  etc   195,  028,  085.  35 

Fifth.  Loans  and  discounts  on  demand,  or  running  thirty,  sixty,  or 

ninety  days,  about  7   3,  000,  000,  000.  00 

All  taken  upon  a  gold  basis  and  measured  in  gold  values,  or  a  total 

amounting  to   4,  227,  601,  097. 10 

In  cash,  gold,  silver,  bank  balances,  and  available  assets  to  guaran- 
tee and  meet  when  presented   1,  314,  270,  997.  30 


Or  more  than  three  for  one. 

This  is  the  largest  possible  amount  that  could  ever  be  issued  under 
any  circumstances  with  our  present  banking  capital,  and  there  is  no 
probability  that  the  circulation  would  ever  reach  two-thirds  of  it. 

But  if  the  last  dollar  were  issued,  everyone  must  know  that  th^se 
bond  notes  and  bank  notes  are  safe,  beyond  a  peradventure. 

Compare  this  situation  with  that  of  our  Government,  which  main- 
tains the  paltry  reserve  of  $100,000,000  to  meet  demand  obligations 
amounting  to  eight  times  that  sum,  or  6800.000,000,  and  decide  for 
yourself  which  is  the  sounder  financial  proposition,  and  wlWner  the 
banks  or  the  General  Government  can  more  easily  maintain  gold 


26  OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 

redemption,  and  in  which  there  is  the  greater  risk  to  our  commercial 
interests  and  national  honor. 

The  one  is  a  natural  and  automatic  redemption  effected  by  the  cur- 
rent exchange  of  propetty  and  titles  to  property,  all  measured  in  gold; 
while  the  other  is  unnatural  and  mechanical  and  wholly  dependent  upon 
the  political  caprice  of  any  Administration  that  may  be  compelled  to 
buy  its  credit  over  and  over  again  by  borrowing  as  the  successive  waves 
of  doubt  sweep  over  us. 

Can  anyone  have  a  shadow  of  a  doubt  about  the  ability  of  the  banks 
to  maintain  gold  redemption  just  as  easily  in  this  country  as  i  t  is  done 
in  Germany,  England,  Ireland,  Scotland,  and  Canada  to-day,  and  as  was 
done  through  the  Suffolk  system  at  Boston  before  it  was  succeeded  by 
our  national  system,  or  as  was  done  in  Louisiana  up  to  the  very  capture 
of  New  Orleans  during  the  war?  Under  that  law  Louisiana  became,  in 
18G0,  the  fourth  State  in  the  Union  iu  point  of  banking  capital,  and 
second  in  point  of  specie  holdings.  There  was  no  security  pledged  for 
the  circulating  notes,  but  not  a  single  bank  in  Louisiana  suspended  dur- 
ing the  panic  of  1857. 

Having  passed  over  the  several  sections  of  this  bill,  pointing  out 
their  objects  and  effects,  one  question  and  the  final  one  most  naturally 
presents  itself  at  the  conclusion;  and  that  is,  in  what  way,  if  any,  will 
the  operation  of  the  bill  affect  the  amount  of  circulation  now  out- 
standing?   Will  it  expand  or  contract  it? 

The  total  amount  of  money  of  all  kinds  in  circulation  at  the  end  of 
the  last  fiscal  year,  June  30,  1895,  was  81,004,131,968.  The  amount  of 
gold  novi  estimated  to  be  in  the  country  and  which  would  then  be  in 
circulation  is  about  $600,000,000;  the  amount  of  silver  now  estimated 
in  the  country  and  which  would  then  be  in  circulation,  $600,000,000. 
Should  the  United  States  Government  bond  notes  taken  out  be  just 
equal  to  the  present  national-bank  capital  there  would  be  an  expansion 
of  §257,000,000. 

However,  it  is  not  reasonable  to  expect  that  all  the  national  banks 
in  our  great  cities  would  take  out  the  circulation,  as  their  deposits  are 
so  large  that  they  would  not  need  it.  Were  the  circulation  increased 
or  diminished,  a  perfect  adjustment  would  be  found  iu  the  bank  notes, 
which  would  always  automatically  respond  to  the  ever- varying  condi- 
tions of  every  locality  of  our  great  country. 

It  is  therefore  apparent  that  the  change  would  be  completely  effected 
within  a  very  short  time,  and  with  only  the  most  wholesome  influence 
upon  the  public  mind,  and  absolutely  without  interfering  with  the  busi- 
ness interests  anywhere,  and  as  one  banker  wrote  the  other  day,  u  We 
would  then  have  a  banking  system  superior  even  to  that  of  Canada, 
which  I  now  regard  as  the  most  perfect  in  the  world." 

To  review  the  result  in  a  word : 

First.  Our  banking  business  would  be  taken  out  of  politics. 

Second.  Our  Government  would  betaken  out  of  the  banking  business. 

Third.  Y\Te  would  be  saving  the  difference  between  2  per  cent  and  4 
and  5  per  cent  on  our  debt,  or  more  than  $15,000,000  annually. 

Fourth.  Hundreds  of  millions  of  dollars  would  come  here  for  invest- 
ment and  vast  sums  now  being  withdrawn  would  remain,  because  there 
could  be  no  fear  then  as  now  among  foreign  capitalists  that  they  might 
get  only  50  cents  for  each  dollar  they  now  have  invested  here. 

Fifth.  The  great  bulk  of  our  paper  money  would  be  good  enough  to 
travel  around  the  entire  world  side  by  side  with  the  Bank  of  England 
note. 

Sixth.  The  entire  reserves  of  our  banks  would  be  gold  and  silver. 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


27 


Seventh.  A  vast  amount  of  gold  and  silver,  taking  the  place  of  our 
smaller  bills,  would  circulate  among  our  people  with  a  most  salutary 
effect. 

Eighth.  Our  smaller  villages  and  more  remote  places  would  have  the 
advantage  of  banking  privileges. 

Ninth.  Instead  of  our  eight  different  kinds  of  money  we  would  have 
but  two  besides  gold  and  silver. 

Tenth.  What  is  most  important,  there  would  be  a  lowering  and 
equalization  of  the  rates  of  interest  in  the  different  parts  of  the  United 
States. 

Eleventh.  The  people  of  every  locality  would  be  blessed  with  an  elastic 
currency  based  upon  their  own  wealth. 

Twelfth.  Panics  would  be  checked  and  currency  famines  would  be 
unknown. 

Thirteenth.  Our  financial  evils  would  be  removed,  and  unexampled 
prosperity  would  swiftly  follow  in  the  wake  of  the  change. 

Fourteenth.  Doubt  would  give  way  to  certainty;  fear  to  hope;  con- 
fusion to  order;  hesitation  to  confidence;  and  upon  our  integrity  and 
intelligence  would  rest  the  beneficent  smile  of  Providence. 


• 


BILL  (H.  R.  6442)  INTRODUCED  BY  MR.  FOWLER. 


54th  Congress,  1st  Session.    H.  E.  0442. 

In  the  House  of  Representatives. 

February  24,  189G. 

Mr.  Fowler  introduced  the  following  bill;  which  was  referred  to  the 
Committee  on  Banking  and  Currency  and  ordered  to  be  printed 

A  BILL 

To  take  the  United  States  Government  out  of  the  banking  business, 
refund  the  national  debt,  reform  the  currency,  and  to  improve  and 
extend  our  banking  system. 

Section  1.  Be  it  enacted  by  the  Senate  and  House  of  Representatives 
of  the  United  States  of  America  in  Congress  assembled,  That  there  shall 
be,  and  there  is  hereby,  created  and  established  a  Department  of 
Finance,  which  shall  have  entire  and  exclusive  control  and  supervision 
of  all  national  banks,  their  right  to  take  out  secured  circulation  and 
issue  their  notes. 

Sec.  2.  That  there  shall  be  three  ministers  of  finance  who  shall  take 
the  place  of  the  Comptroller  of  the  Currency  and  constitute  a  board  of 
finance;  and  said  board  of  finance  shall  conduct  the  said  Department 
of  Finance.  That  said  ministers  of  finance  shall  be  appointed  by  the 
President,  by  and  with  the  advice  and  consent  of  the  Senate,  and  the 
term  of  office  shall  be  for  a  period  of  twelve  years  at  a  salary  of  ten 
thousand  dollars  per  annum.  That  the  term  of  the  first  three  ministers 
shall  be  for  twelve,  eight,  and  four  years  respectively.  The  minister 
being  appointed  for  twelve  years  and  his  successors  shall  be  known  as 
First  Minister  of  Finance,  and  he  shall  preside  at  all  meetings  of  the 
board  of  finance;  and  the  remaining  two  ministers  shall  be  known  as 
Associate  Ministers  of  Finance. 

Sec.  3.  That  any  national  bank  now  doing  business,  or  any  other 
financial  institution  doing  a  similar  business,  or  any  number  of  persons 
may,  in  accordance  with  existing  law,  so  far  as  the  same  is  consistent 
with  this  act,  organize  upon  the  following  terms  and  conditions: 

If  any  corporation  described  as  aforesaid  shall  deposit  with  the  United 
States  Government  any  of  the  United  States  bonds  now  outstanding, 
or  any  that  may  be  hereafter  issued  under  existing  law,  which,  at  their 
market  value,  shall  exceed  the  capital  of  said  corporation  by  five  per 
centum,  the  United  States  Government  shall  issue  to  said  corporation, 
in  lieu  of  said  bonds  so  deposited,  two  per  centum  United  States  Gov- 
ernment bonds  equal  in  amount  to  such  market  value,  both  principal 
and  interest  of  said  new  bonds  being  payable  in  gold;  and  said  new 
bonds  shall  thereupon  be  deposited  with  the  United  States  Govern- 

29 


30 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


ment,  and  circulation  known  as  United  States  Government  bond  notes 
shall  be  issued  to  said  corporation  in  an  amount  equal  to  the  paid-up 
capital  of  said  corporation  denominations  of  ten  dollars  or  multiples 
thereof. 

Sec.  4.  That  said  United  States  Government  bond  notes  shall  be  a 
legal  tender  between  all  national  banks  and  be  redeemed  in  gold  when 
presented  for  payment  at  the  bank  of  issue;  and  that  from  the  passage 
of  this  act  all  duties  on  imports  shall  be  paid  in  gold  coin. 

SEC.  5.  That  at  the  same  time  that  said  corporation  shall  deposit 
United  States  Government  bonds  as  aforesaid  it  shall  also  deposit 
with  the  United  States  Government  United  States  legal-tender  notes 
or  gold  certificates,  or  both,  of  such  an  amount  that  it,  together  with 
the  gold  said  corporation  has  on  hand,  will  equal  fifteen  per  centum  of 
its  deposits j  and  the  United  States  Government  shall  deliver  to  said 
corporation  gold  coin  in  lieu  of  said  legal-tender  notes  and  said  gold 
certificates.  Said  corporation  shall  also  deposit  at  the  same  time,  with 
the  United  States,  United  States  Treasury  notes  or  United  States  sil- 
ver certificates,  or  both,  which,  with  the  silver  coin  then  held  by  said 
corporation,  shall  amount  to  ten  per  centum  of  its  deposits,  and  the 
United  States  Government  shall  deliver  to  said  corporation  in  lieu 
thereof  silver  coin  of  an  equal  amount;  and  said  legal-tender  notes, 
gold  certificates,  Treasury  notes,  and  silver  certificates  shall  be  there- 
upon canceled.  Said  corporation  shall  thereafter  keep  as  a  reserve 
twenty-five  per  centum  of  its  deposits  in  the  following  kinds  of  money: 
gold  and  silver.  At  least  sixty  per  centum  of  said  reserve  shall  be  in 
gold  coin,  and  the  remaining  forty  per  centum  of  said  reserve  may  be 
in  silver  coin:  Provided,  however,  That  in  lieu  of  one-half  of  such  coin 
w  i  i  ve,  cash  on  deposit  in  reserve  cities,  subject  to  check,  may  be  held 

SEC.  0.  That  any  corporation  organized  under  this  act  may,  with  the 
permission  under  the  supervision  and  control  of  the  board  of  finance, 
issue  its  own  circulation,  which  shall  be  furnished  by  the  United  States 
Government  and  be  known  as  United  States  national-bank  notes. 
Said  United  States  national-bank  notes  shall  be  issued  in  denominations 
of  live  dollars  and  multiples  thereof,  and  maybe  issued  only  in  the 
following  manner  and  upon  the  following  conditions; 

first.  Every  bank  issuing  United  States  national-bank  notes  shall  at 
all  limes  maintain  against  the  amount  of  such  note  outstanding  a 
reverse  corresponding  to  that  required  against  its  deposits* 

Second.  Any  bank  that  has  complied  with  the  law  may,  with  the  con- 
tent and  under  control  of  the  board  of  finance,  issue  an  amount  of 
United  States  national  -bank  notes  equal  to  twenty  per  centum,  or  one- 
fifth  of  its  paid  up  and  unimpaired  capital,  and  shall  pay  upon  such 
an  amount  thereof  as  may  be  at  anytime  outstanding  a  tax  at  the  rate 
of  one  half  of  one  per  centum  per  annum. 

Thir<L  Said  bank  may  issue  a  second  amount  of  notes  equal  to 

twenty  per  centum,  or  oik4  fifth  of  its  paid  up  and  unimpaired  capital, 
and  shall  pay  upon  such  an  amount  thereof  as  may  be  at  any  time 
outstanding  a  tax  at  the  rate  of  one  per  centum  per  annum. 

Fourth,  Said  bank  may  issue  a  third  amount  of  notes  equal  to 
twenty  per  centum,  or  one  fifth  of  its  paid  up  and  unimpaired  capital, 
and  shall  payupOD  such  an  amount  thereof  as  may  be  at  any  time 
Outstanding  a  tax  at  the  rate  of  two  per  centum  per  annum. 

Fift  h.  Said  bank  may  issue  a  fourth  amount  of  notes  equal  to  twenty 
per  centum,  or  one-nil  h  of  its  paid  up  and  unimpaired  capital,  and  shall 
pay  upon  such  an  amount  thereof  as  may  be  at  any  time  outstanding  a 
tax  at  the  rate  of  tour  per  centum  per  annum. 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


51 


Sixth.  Said  bank  may  issue  a  fifth  amount  of  notes  equal  to  twenty 
per  centum,  or  one-fifth  of  its  paid  up  and  unimpaired  capital,  and  shall 
pay  upon  such  an  amount  thereof  as  may  be  at  any  rime  outstanding  a 
tax  at  the  rate  of  six  per  centum  per  annum. 

Sec.  7.  That  all  taxes  so  paid  to  the  Government  upon  said  United 
States  national-bank  notes  shall  be  set  aside  and  held  by  the  Govern- 
ment as  a  guarantee  fund  exclusively  for  the  redemption,  first,  of  the 
United  States  Government  bond  notes:  second,  for  the  United  States 
national-bank  notes,  in  the  event  of  the  liquidation  of  any  bank  organ- 
ized uuder  this  law:  ProriVforf.fioirerrr,  That  whenever  said  guarantee 
fund*7  shall  exceed  five  per  centum  of  both  the  United  States  Govern- 
ment bond  notes  and  the  United  States  national-bank  notes,  such 
excess  shall  belong  to  the  United  States  Government  and  may  be  used 
by  it  to  defray  its  general  expenses. 

Sec.  S.  Thar  the  board  of  finance  shall  divide  the  I  nited  States  into 
clearing-house  or  reserve-city  districts,  and  each  corporation  shall 
belong  distinctively  to  some  one  district,  and  the  number  of  such  dis- 
trict shall  be  plainly  and  prominently  printed  upon  the  said  United 
States  national  bank  notes  issued  by  the  banks  located  therein.  The 
several  banks  of  each  district,  upon  receiving  United  States  national- 
bank  notes  belonging  to  any  other  district,  shall  forward  the  same  to 
a  reserve  city,  which  shall  return  them  to  the  district  to  which  they 
belong. 

Sec.  0.  Thar  the  United  States  national-bank  notes  shall  be  a  legal 
tender  at  par  between  all  national  banks,  and  the  same  shall  be 
redeemed  upon  presentation  at  the  bank  of  issue,  in  gold,  silver,  or 
United  States  Government  bond  notes:  Provided,  however,  That  no 
more  than  forty  per  centum  thereof  shall  be  receivable  in  silver  coin. 

Sec.  10.  That  banks  may  be  organized  under  this  act  with  a  capital 
of  twenty  thousand  dollars  or  any  greater  amount  in  multiples  of  teu 
thousand  dollars;  bntno  bank  shall  beorgauized  in  any  reserve  city 
with  a  less  capital  than  one  hundred  thousand  dollars. 

Sec.  11.  That  all  banks  organized  and  doing  business  under  this  act 
outside  of  the  reserve  cities  shall  keep  as  a  reserve  fifteen  per  centum 
of  irs  deposits,  and  sixty  per  centum  of  said  reserve  shall  be  in  gold 
coin,  and  forty  per  centum  may  be  in  silver  coin:  Provided,  however, 
That  in  lieu  of  one-half  of  such  coin  reserve,  cash  on  deposit  in  reserve 
cities,  subject  to  check,  may  be  held. 

Sec.  12.  That  each  bank  organized  under  this  act  and  doing  business 
outside  of  a  clearing-house  city  shall  select  some  national  bank  in  the 
clearing-house  city  of  its  own  district  through  which  it  shall  redeem  its 
United  States  national-bank  notes  in  gold,  silver,  or  United  States 
national-bank  notes. 

Sec.  13.  That  the  United  States  Government  shall  not  pay  out  or 
reissue  any  United  States  legal-tender  notes  from  and  after  the  first  day 
of  January,  eighteen  hundred  and  ninety-seven:  but  the  same,  when 
received,  shall  be  canceled  and  destroyed :  and  further,  that  the  United 
States  Government  shall  not  pay  out  or  reissue  any  United  States 
Treasury  notes  or  silver  certificates  from  and  after  the  first  day  of  July, 
eighteen  hundred  and  ninety- seven,  but  the  same  shall  be  canceled  and 
destroyed:  and  the  United  States  may  put  out  an  amount  of  silver 
coin  equal  to  the  Treasury  notes  and  silver  certificates  so  destroyed. 

Sec.  14.  That  in  the  event  of  the  liquidation  of  any  rational  bank 
organized  under  this  act.  the  United  States  Government  shall  under- 
take as  trustee,  but  shall  not  be  responsible  for  the  redemption  of  the 
outstanding  notes:  and  the  assets  of  said  bank,  including  the  assess- 


32 


OUR  FINANCIAL  DIFFICULTY  AND  THE  REMEDY. 


ment  upon  the  shareholders,  shall  be  distributed  in  the  following 
order : 

First.  Sufficient  gold  coin,  or  its  equivalent,  shall  be  set  aside  and 
held  by  the  Government  for  the  redemption  of  the  United  States  Gov- 
ernment bond  notes. 

Second.  Sufficient  gold,  silver,  and  United  States  Government  bond 
notes  shall  be  set  aside  and  held  by  the  Government  for  the  redemption 
of  the  United  States  national-bank  notes,  with  interest  thereon  at  the 
rate  of  6  per  centum  per  annum  from  the  date  of  suspension  to  the 
date  fixed  for  the  redemption  thereof. 

Third.  That  out  of  the  proceeds  of  the  United  States  Government 
bonds  deposited  wTith  it  and  the  guarantee  fund  created  as  aforesaid, 
the  United  States  Government  shall  redeem,  upon  presentation,  any 
of  said  United  States  Government  bond  notes,  or  said  United  States 
national-bank  notes,  reimbursing  itself  out  of  said  assets. 

Fourth.  The  assets  remaining  shall  be  distributed  among  the  depos- 
itors and  all  others  having  claims  in  the  same  manner  as  now  provided 
by  law. 

Sec.  15.  That  all  acts  or  parts  of  acts  inconsistent  with  the  foregoing 
shall  be,  and  the  same  are  hereby,  repealed. 

C 


